Should You Surrender Your LIC Policy? Run These Four Numbers First

There is a familiar moment: you look at an LIC policy taken out years ago, work out the implied return, and decide you could do better elsewhere. Often you are right about the return. That does not automatically make surrendering the right move, because the exit price is set by a formula designed to protect the policyholders who stay.

Before you call the branch, run these four numbers.

1. What you will actually receive

LIC pays the higher of two figures.

The Guaranteed Surrender Value is a percentage of the total premiums you have paid. On a policy sold since 1 October 2024, under the IRDAI (Insurance Products) Regulations, 2024, it is nil in the first year, 30% in year two, 35% in year three, 50% from year four to year seven, and only climbs towards 90% in the final stretch of the policy. It needs two full years’ premiums. Policies sold before October 2024 run on the older rules in their own document, which left the first year’s premium out of the calculation altogether.

On a ₹25,000-a-year policy surrendered in year five, you have paid ₹1,25,000. At 50% the GSV is ₹62,500, plus a slice of vested bonus. You have lost about half your money.

The Special Surrender Value works from the paid-up value (the sum assured scaled by the fraction of the premium term you completed, plus vested bonuses), discounted back to today. Under the 2024 rules it is available once the first policy year is complete and one full year’s premium has been paid. LIC reviews the basis every year, and it tends to overtake the GSV in the later years.

Work out both on the surrender value calculator before you commit to anything.

2. What making it paid-up would give you instead

This is the option people forget exists.

If at least one full year’s premium has been paid and you simply stop paying, the policy becomes paid-up. The sum assured reduces in proportion to the premiums you paid (pay 8 years of a 20-year term and the cover becomes 8/20ths of the original), but that reduced sum assured, plus every bonus already vested, stays in force until the original maturity date.

You get nothing today. You get considerably more later, and the life cover survives. For anyone who cannot afford the premiums but does not urgently need cash, paid-up beats surrender almost every time.

3. What a policy loan would cost

If the need is temporary, such as a medical bill or a gap between jobs, LIC will lend against the surrender value. On a policy sold since October 2024 the limit is printed in the brochure: New Jeevan Anand allows 50% of the surrender value before two full years’ premiums and 75% after, New Endowment Plan 50% and 80%. The rate is fixed each May for loans taken in the following year; for May 2024 to April 2025 it was 9.5% compounding half-yearly.

That is not free money, but compare it with what surrender costs. Borrowing ₹45,000 against a policy at 9.5% for two years costs roughly ₹9,000 in interest. Surrendering the same policy in year five gives up around ₹62,500 of the ₹1,25,000 paid in, permanently. The loan keeps the policy, the vested bonus and the Final Additional Bonus alive.

4. What you forfeit by not reaching maturity

The Final Additional Bonus is paid only when a claim arises. Surrender and it vanishes, all of it.

On short policies that hardly matters; little or nothing is payable below 15 years. On long ones it can be decisive. LIC declares FAB rates per plan and per term with each valuation, and they climb steeply with duration, so on a 30-year policy the FAB can run to lakhs of rupees on a ₹5 lakh sum assured. Ask the branch for the current rate on your own plan and term before you weigh it. Surrendering at year 26 to save four years of ₹25,000 premiums means paying ₹1,00,000 less and giving up whatever that FAB is.

The rule of thumb that follows: the closer you are to maturity, the worse surrender looks. Past the two-thirds mark, it is very hard to make the arithmetic work.

When surrendering genuinely is right

It is not never. Surrender makes sense when:

• The policy is young (under three or four years) and small, and continuing it would crowd out proper term cover you actually need.
• The premium is genuinely unaffordable and you need the cash now, with paid-up and a loan both ruled out.
• You were mis-sold. If someone sold your parent a 20-year plan at age 62, the policy will mature past the maximum age or lapse anyway; cut the loss.
• You are badly over-insured on savings plans and under-insured on protection. Consolidating into one term plan plus an index fund is a defensible move, provided you buy the term cover before you surrender anything.

The one call to make first

Ask your servicing branch for a written surrender quotation, and ask for the paid-up value alongside it. Both are free, both take a few days, and the quotation is the only figure that actually binds LIC. Every calculator on the internet, this one included, is producing an estimate from published rules: useful for deciding whether to ask, not a substitute for asking.