Need money or can't pay premiums? Learn how surrender value, paid-up value and LIC policy loans work, and why surrendering early usually costs you.
When premiums become hard to manage or you need cash, before you stop paying or close your LIC policy, it helps to know your three main choices: surrender it, let it become paid-up, or take a policy loan. This guide explains each one.
What does "surrender" mean?
To surrender a policy means to close it before maturity and take back whatever cash value it has built up. That cash amount is called the surrender value. Once it is paid, the policy ends, and your family has no further cover under it.
Guaranteed vs Special Surrender Value
LIC brochures mention two types:
| Type | What it is |
|---|---|
| Guaranteed Surrender Value (GSV) | A minimum worked out from fixed factors printed in the brochure, applied to premiums paid (plus a separate factor for vested bonuses) |
| Special Surrender Value (SSV) | A value LIC calculates using its own method, which is reviewed from time to time |
On surrender, LIC pays the higher of the two. This is how it works in both New Jeevan Anand (715) and Jeevan Labh (736).
When does a policy get a surrender value?
This depends on the plan, so always check your plan's brochure. As one example, in plans 715 and 736:
- The policy can be surrendered after the first policy year, if one full year's premium has been paid.
- It gets a Special Surrender Value after the first policy year, if one full year's premium has been paid.
- It gets a Guaranteed Surrender Value only after at least two full years' premiums are paid.
Riders have no surrender value.
Why surrendering early usually loses money
In the early years, most of your premium has gone towards your life cover and the costs of setting up the policy. The savings part is still small. In the plan 715 brochure, for example, the GSV factor on premiums paid is 0% in the first policy year and 30% in the second, and it rises slowly after that.
So if you surrender in the first few years, you may get back much less than you paid. You also lose your life cover, and you lose any final additional bonus you might have received at maturity. That is why surrender is usually the last option to consider.
Paid-up policy and reduced sum assured
If you stop paying premiums after paying for some time, the policy need not end. In plans 715 and 736, if at least one full year's premium has been paid, the policy continues as a paid-up policy with a reduced sum assured.
The reduced amount is worked out in proportion to the premiums paid:
Paid-up sum assured = Sum assured × (premium period paid ÷ total premium period)
Vested bonuses stay attached, but a paid-up policy gets no future bonuses. If less than one full year's premium was paid, nothing is payable and the policy ends.
A simple example (illustration only)
Mohan's policy has a Sum Assured on Maturity of ₹10 lakh and 20 years of premiums. He pays for 8 years and stops.
- Paid-up sum assured on maturity = ₹10,00,000 × 8 ÷ 20 = ₹4,00,000
- At maturity he gets ₹4,00,000 plus the bonuses that had vested by then.
His cover does not vanish, but it shrinks. Paying again through revival may restore it, subject to the plan's rules.
Policy loans
Instead of closing the policy, you can often borrow against it. The policy stays in force, and the loan is limited to a share of the surrender value. In plans 715 and 736, a loan is available after the first policy year, provided one full year's premium has been paid.
Maximum loan as a percentage of surrender value:
| Policy status | Plan 715: before / after 2 full years' premiums | Plan 736: before / after 2 full years' premiums |
|---|---|---|
| In-force | 50% / 75% | 50% / 80% |
| Paid-up | 40% / 65% | 40% / 70% |
Things to keep in mind:
- Interest is charged at a rate LIC sets from time to time.
- If you don't pay interest and the loan plus interest grows beyond the surrender value, LIC can foreclose (close) the policy.
- Any unpaid loan and interest is deducted from the final claim amount.
Which option should you choose?
- Short-term cash need: a policy loan keeps your cover alive.
- Can't continue premiums: a paid-up policy keeps some cover and savings.
- Surrender: consider it only after comparing the other two.
Words like "foreclose" and "vested" are explained in our insurance glossary.
Thinking of surrendering? Talk to us first so we can check your policy's options with you.