Can You Surrender Your LIC Policy Midway? How Much Will You Lose?
Everything you need to know about LIC surrender value, loss calculation, and smarter alternatives — explained simply.
LIC Policy Document — India's most trusted life insurance institution
What Does "Surrendering" a LIC Policy Mean?
When you decide to close your LIC (Life Insurance Corporation of India) policy before its maturity date and ask LIC to return your money, this process is called Policy Surrender. Think of it as an "early exit" — but one that comes with a significant financial penalty.
In simple terms: if you took a 20-year policy, paid premiums for 5 years, and then want to stop — LIC will return only a portion of what you paid in. This amount is called the Surrender Value, and it is almost always far less than the total premiums you deposited.
What Are the Minimum Conditions to Surrender?
Not every LIC policy can be surrendered at any time. Before you're eligible, the policy must first acquire a "paid-up" status. The minimum requirement varies by policy type:
| Policy Term | Minimum Premium Payment Required |
|---|---|
| Policy term up to 10 years | At least 2 full years of premiums paid |
| Policy term more than 10 years | At least 3 full years of premiums paid |
| Single Premium Policy | Surrender allowed after 1 year |
| ULIP Plans | Mandatory 5-year lock-in period |
Documents required for LIC policy surrender at branch office
How Is the Surrender Value Calculated?
LIC offers two types of surrender values — Guaranteed Surrender Value (GSV) and Special Surrender Value (SSV). LIC pays whichever of the two is higher.
📐 Guaranteed Surrender Value (GSV)
Formula: GSV = Total Premium Paid × GSV Factor
The GSV Factor is determined by how many years into the policy you are. Typically: Year 3 = 30%, Year 4 = 50%, Years 5–7 = 50–60%, Years 8+ = 70–80%.
Example: Suppose you paid ₹50,000 per year for 5 years in a 20-year policy — total ₹2,50,000 paid. With a GSV Factor of 50%, you'd receive only ₹1,25,000. That's a direct loss of ₹1,25,000 — and this doesn't even account for the insurance coverage you had all along.
📊 Special Surrender Value (SSV)
SSV is typically slightly higher than GSV because it also factors in any vested bonuses. The formula is:
SSV = (Paid-up Sum Assured + Vested Bonus) × SSV Factor
LIC pays the higher of the two — but in both cases, you will still take a financial hit compared to staying invested until maturity.
Real-Life Example — Exactly How Much Will You Lose?
Let's take a realistic scenario. Suppose Rajesh takes out a LIC Jeevan Anand plan with a Sum Assured of ₹10 lakh, a 20-year policy term, and an annual premium of ₹55,000.
| Surrender Year | Total Premiums Paid | Approx. Surrender Value | Your Loss |
|---|---|---|---|
| 3rd Year | ₹1,65,000 | ₹49,500 | ~70% loss |
| 5th Year | ₹2,75,000 | ₹1,37,500 | ~50% loss |
| 10th Year | ₹5,50,000 | ₹3,30,000 | ~40% loss |
| 15th Year | ₹8,25,000 | ₹6,18,750 | ~25% loss |
| 19th Year | ₹10,45,000 | ₹9,40,000+ | ~10% loss |
The pattern is clear — the earlier you surrender, the bigger the blow to your finances. The loss reduces progressively as the policy matures, but there is almost always some financial cost to exiting early.
Surrendering too early can cause serious long-term financial damage
Smarter Alternatives Before You Surrender
Surrendering your LIC policy should always be the last resort. Before making that call, consider these options that can help you manage your situation without losing a large chunk of your money:
- Policy Loan: You can borrow up to 80–90% of your policy's surrender value as a loan from LIC at a relatively low interest rate. This gives you liquidity without terminating the policy.
- Paid-Up Policy: Stop paying premiums but don't close the policy. It continues with a reduced Sum Assured until maturity — you lose no money upfront.
- Premium Waiver: In certain situations (like job loss or health issues), LIC agents may help explore waiver or deferment options. Always ask before quitting.
- Policy Revival: If your policy has lapsed, you can revive it within 5 years by paying overdue premiums and interest — a far better option than surrendering.
- Partial Withdrawal (ULIPs): For ULIP plans, partial withdrawal is available after the 5-year lock-in, which is far more efficient than full surrender.
Step-by-Step Process to Surrender a LIC Policy
If you have weighed all alternatives and still wish to proceed, here is how the surrender process works:
📄 Documents Required
You will need the Original Policy Bond, Form 5074 (Surrender Request Form), a valid Photo ID (Aadhaar/PAN), a Cancelled Cheque in your name, a copy of your Bank Passbook, and the LIC Discharge Form (available at your branch). Make sure all documents are self-attested.
🏢 The Surrender Process
Visit your nearest LIC branch → Fill and submit the Surrender Form along with required documents → LIC will verify your submission (this typically takes 7–15 working days) → Once approved, the surrender amount will be credited directly to your registered bank account. For select policies, online surrender is also available through the LIC portal at licindia.in.
What About Tax on LIC Surrender Value?
Whether your LIC surrender value is taxable depends on the type of policy and how long you held it. If the policy has been held for at least 2 years and the annual premium does not exceed 20% of the Sum Assured, the surrender amount is generally tax-free under Section 10(10D) of the Income Tax Act.
However, if these conditions are not met, the entire surrender value gets added to your annual income and is taxed according to your applicable income tax slab. This can further reduce your effective payout — making an already painful surrender even more costly.
💡 Expert Advice
A LIC policy is a long-term financial commitment — not a savings account you can dip into freely. Surrendering in a moment of financial stress can cause irreversible damage to your wealth. Always speak to a certified financial advisor, explore loans or the paid-up option first, and surrender only when there is absolutely no other way forward. The longer you wait, the less you lose.
Conclusion
Yes, you can surrender your LIC policy midway — but the financial consequences can be severe, especially in the early years. Losses of 50–70% are not uncommon for policies surrendered within the first 5 years. The policy was designed to be held to maturity, and the full benefits — sum assured, bonuses, and tax-free returns — only materialize when you do so.
If you're facing a financial crunch, remember that surrendering is not your only option. A policy loan, a paid-up conversion, or a revival plan may serve you far better. Take time, think it through, and seek professional guidance before making an irreversible decision.
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