Surrendering an LIC Policy Before Maturity

September 04 , 2013

If you have concluded that your LIC policy was the wrong buy for your need and wish to surrender it this article will take you through common issues you might encounter and how to approach them. Basically all you need to do is submit relevant policy surrender form in the LIC branch that issued policy. In paragraphs below read about calculating surrender value and submitting  LIC policy surrender form in detail.

Know your LIC policy surrender value

Surrender value is what you are entitled to receive on returning the policy before it completes maturity. Depending on how premiums have been paid and how many years are left to maturity you would get back an amount less than the total premiums paid or more than that.

Find out surrender value of your policy either doing the simple math yourself (refer to article at or pay a visit to your LIC office and request them to tell you the number. They do seem to entertain such requests over phone too. 

Before going in with the decision of surrendering be clear whether it makes better financial sense to make the policy a paid-up one instead.

Download LIC policy surrender form

If you already tried you would have realised that policy surrender forms are not avaliable for downloading on LIC website's download section. All life insurers discourage surrender of policy through public literatures but if you're convinced the policy is not the right one for you then nothing should be stopping you.

Download policy surrender form 5074 from the link, take a print of it and fill in relevant details. Fill in form for Application for Surrender Value and Receipt for Surrender Value of Policy. You can fill NEFT mandate form as well for receiving payment via NEFT in your bank account. You can attach a cancelled cheque that has your name and bank account printed on it- this will make it easier.

Submit policy surrender form branch that issued it

Presently you cannot surrender LIC policy online; well one cannot even buy them online (because they need to safeguard their agents' interests!). Filled surrender form needs to be submitted in LIC branch that issued it- other branches will not accept it. If this is not possible in person you can send the form by post.

Consider tax implication of surrendering insurance policy

80C benefits on premium will be reversed if life insurance policy is surrendered before 5 years of buying them. Suppose you return a policy in the 4th year and you have claimed tax rebate to the tune of Rs 1 lakh on premiums in these 4 years. In this case Rs 1 lakh will be added to your income under the head 'Income from Other Sources' in the 4th year and you need to pay tax on it.

Life insurance payouts such as death benefit, maturity benefit, surrender value are tax-free under section 10(10)d. However this is not true if premium is more than 20% of basic sum assured in case of policies issued on or after 1 April 2003 or more than 10% of basic sum assured in case of policies issued on or after 1 April 2012. The entire surrender value will be taxable under the same head as mentioned above.

LIC staff are known to be co-operative in handling customer requests. If possible go down to the nearest office and confirm if there is anything in addition you are required to attach. Some branches might expect you to provide the original policy documents too. You might want to check out with an agent or the office before proceeding.

Disclaimer: This is not an endorsement for surrendering LIC policies. Evaluate your policies before acting or consult a financial adviser.

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