Surrender Value

Surrender Value

Most of the people who buy any Traditional Policies from LIC or any pvt companies’ don’t think a bit about terms and conditions on exiting the policy much before maturity. A general assumption is that they will at least get their paid premiums back with sum interest. I have seen so many cases like that where people are literally shocked to hear that they will get peanuts or nothing from their policy if they choose not to continue the policy. Surrendering of the policy works this way -

You will not get anything back if you stop your policy without paying for 3 years. Almost every traditional policy attains minimum surrender value after the policy has run for 3 yrs.

After 3 yrs, if you surrender your LIC policy, still you will only get a small fraction of your total paid premiums that too excluding first year premiums. So suppose you have a policy which has Sum assured of 10,00,000 for 20 yrs term with Rs 50,000 premium per year. If you have decided to surrender your policy after paying 5 premiums (you paid 2,50,000 in 5 yrs i.e. Rs 50,000 each year), then you will get around 30%-40% of 4 premiums paid (first year premiums are excluded), hence the total would work out to be only Rs 60,000 – Rs 80,000 only + proportionately reduced amount of accrued bonus if any (only because you completed 5 yrs, else you will not get this also).