Since recognising life insurance policies is a tricky affair, we first help you identify them before getting into the nitty-gritty
22-Dec-2022 •Aakar Rastogi
Are you sure you have an endowment or a money-back plan? Or is it a ULIP?
Before we get into the step-by-step process of surrendering your life insurance policy, let us ensure we understand what kind of insurance policy you own. This is an essential step because different policies have different surrender processes.
What we recommend
Of the three types of life insurance policies, term plans are the BEST! If you have a term plan, stick with it.
But please note there are a few term plans that promise to return the premium amount at the end of the policy. However, such plans are usually expensive and should be avoided.
But if you have a ULIP or an endowment/traditional/money-back policy plan and want to discontinue your relationship, here's what you need to do. (For those who have a ULIP, please visit this page).
Surrendering process of endowment/money-back policy
These policies usually have a two- or three-year lock-in period.
Confirm your policy's lock-in period by reading the 'Surrender' clause. It will be mentioned in the fine print of your policy document.
Surrendering your policy during the lock-in period
In most cases, if you discontinue paying your premium before completing the lock-in period, you will not receive any money from the insurance company.
In some cases, the policy may get converted into a paid-up policy. This option is available even after completing the lock-in period.
What is a paid-up policy
When you stop paying premiums but continue to get insurance coverage
Surrendering after completing the lock-in period
Paid-up vs surrender: Which one to choose?
There is no one-size-fits-all answer to this question.
It could differ even for two individuals having the same insurance policy. That's because the paid-up and surrender value depends on many variables:
To get a precise answer, pick your policy document, go through the formulas mentioned under the paid-up and surrender clause and calculate which option would be more profitable for you.
The easier way would be to ask the branch executive of the life insurance company to provide you with the two figures.
You can then analyse which one is better.
Generally, if the maturity period is a long way off (say five to seven years or more), it could be worthwhile to get your money back and put it in investment avenues that provide better returns. Equity mutual funds can be one such option.
On the other hand, staying invested could be beneficial if your policy matures in a year or two. But as stated before, to get the precise answer, you will have to do some mathematics.
This is how the paid-up and surrender clause look for Aditya Birla Sun Life Assured Savings Plan
Suggested read: Say no to endowment policies and ULIPs