My Jeevan Saral policy will complete five years in August 2016. If I surrender the policy after August 2016, what will be the taxation of the amount received? I am currently paying a monthly premium of ₹3,062.
- Naveen Kamath
LIC Jeevan Saral is an endowment policy. Surrender value will be added to your income and taxed as per your applicable income tax slab rate. However surrender will be tax free if your policy sum assured is more than five times the annual premium (this is applicable for traditional endowment policies issued between 1/4/2003 - 31/03/2012).
The surrender value of the policy will be the greater of the guaranteed surrender value and special surrender.
Guaranteed surrender value will be equal to 30% of the total amount of premiums paid excluding the premiums for the first year and all the extra premiums and premiums for accident benefit / term rider. In your case it will be ₹44,093 (30% of 146976).
Special Surrender Value will be 100% of the Maturity Sum Assured, if five or more years' premiums have been paid. The Maturity Sum Assured for this will be the Maturity Sum Assured corresponding to the term for which premiums have been paid under the policy.
Though you will make losses on surrender, it is not wise to continue investing in a bad product. Such insurance-cum-investment plans typically offer a very small insurance cover and they also offer very modest returns. In future, buy a pure term insurance product to buy a life insurance cover. Invest in mutual funds to achieve your financial goals.
This article was originally published on April 14, 2016.
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