If LIC policy is surrendered before maturity, it can lead to loss, know everything related to it

LIC Policy Surrender: Life insurance provides financial security in case of emergency. If the main earning person in the family dies suddenly, then in this situation the insurance policy provides financial help to the dependents. However, this is a long term plan, in which the policyholder sometimes faces challenges in paying the premium on time or getting money suddenly in case of emergency. In such a situation, many times there is a need to surrender the policy prematurely.

Many disadvantages of surrendering the policy

By surrendering the policy, you get the money immediately, but it also has disadvantages. Whereas in other funding options this risk remains less. Speaking to Business Today, Hanut Mehta, Co-Founder and CEO, BimaPay Finsure, says, “Insurance companies also provide the facility to policyholders to take a loan instead of surrendering the policy. Due to this, when the policy matures, the insurance companies deduct the interest charged on the loan and transfer all the remaining money. This means that the loss also reduces and the profit on the policy also remains the same.

Payment is made after deducting the surrender value.

Surrendering the policy means that you lose out on its benefits such as the death benefit amount is paid by the insurance company to the nominee on the death of the policyholder, the deposit amount is received along with the bonus on maturity of the policy. Yes, you also get the benefit of cash value. If you surrender the policy, the benefit you get when it matures is much less than what you were supposed to get.

Usually the surrender value is 30 percent of the premiums paid so far. That means the insurance company deducts surrender charge on the deposited amount as premium. The surrender value may vary across insurance companies. There are many policies through which you can claim tax exemption. Whereas if you surrender, you do not get this benefit, hence the decision to surrender the policy should be taken very thoughtfully.

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