Surrender Life Insurance policy, as implied, means full cancellation of the specified life policy either within the policy term or after renewal. One can cancel or surrender their policy as required and still enjoy the benefits of accumulated funds that were built over long policy tenures. This cash value can only be enjoyed if regular and proper funding was done over time. In case an insured wants to surrender life insurance policy before the maturity or the lock-in period then a surrender fee will be levied to do so. These charges will depend on the premium paid and its term as well as the policy purchased.
But before we get on with the pointers to keep in mind for surrendering life insurance, let us understand some aspects of the life insurance in regards to surrendering it first.
What are Life Insurance plans?
As most would already know, life insurances are financial covers that protect the insured in case of plausible contingencies affecting their life. These comprise of permanent disabilities, accidents, and death etc. of both natural and accidental nature.
Having cleared out some basic benefits, there might be instances where the insured might have to surrender a certain life policy. May whatever be the reason the entire procedure to surrender might sometimes have complications determined by factors like the type of policy and the insurance company etc.
Surrender Life Insurance Policy – What Things to keep in mind
Coming to the pointers, these are some of the major factors to keep in mind while deciding to surrender a policy and/or while surrendering it:
- First and foremost, make sure your policy has the surrender value option. This can also be kept in mind while purchasing a policy just to be sure.
- Life insurance policies are of much variety but not all offer a surrender value: In case of a term insurance policy, it is a given that surrender values are not provided under the plan.
- Alternatively, Endowment Policies are availed with a lock-in period of about 3 years depending on the company. And surrendering an Endowment policy before its completion or maturity will result in a loss greater than the premium paid.
- Talking about the lock-in period, ULIPs come with a 5 year lock-in period and such policies should ideally be considered and completed after the lock-in period. It improves the scope of growth of the corpus within that period.
- According to experts, it is advisable to not surrender life insurance policy before the maturity date or lock-in period even though it is suggested. As surrender values can be of two types: guaranteed surrender value and special surrender value.
- The first value is calculated on the percentage of the paid premium up to the time of surrendering, it is not inclusive of the first year’s premium or any rider premiums. The latter is calculated on the sum assured or the accrued bonuses, the policy term and the total premiums paid to the time of surrendering. Calculate the following values by multiplying the surrender value factor and pick the best option. It is important to note that these values will change from insurer to insurer.
- Make sure to check up the surrender charges which will vary depending on the type of policy. The surrender charges will be higher if the investments made or the savings accumulated and these applicable charges for term insurances, as mentioned, but are for money back plans, endowment plans and Unit-linked plans etc.
- Lastly, the procedure to surrender life insurance policy has to be kept in mind. It is essentially these steps as follows- As per the standard procedure, it starts with intimating the insurance provider and submitting a request form to initiate the surrender.
- The form will consist of basic personal identity questions and some life insurance-related information will be asked for. Along with all written information some relevant and necessary documents like original policy papers, identity proofs like PAN card/Aadhaar card/Driving license/ Passport etc., income proof like bank statement/cancelled cheque/salary slip/passbooks etc. will have to be submitted.
- Your request to surrender can either be approved or rejected depending on the company policy, terms and conditions, or the documents and information provided etc. In case of cancellation, the insuring company will have to provide a valid reason for it to the policyholder.
To conclude, life Insurance policies can be surrendered if required and the final decision depends solely on the policyholder. But, keep in mind that giving up or cancelling a policy might affect all the accrued balances, bonuses or advantages provided with the insurance scheme. Furthermore, unwise and hasty decisions might affect the policyholder’s investments as the premium paid might turn out to be much lesser than the surrender value; therefore, the money that comes back will be an insignificant number than that levied as surrender value. Therefore, make a sound decision after research and do not unnecessarily surrender life insurance policy without a valid reason or thorough understanding of it.