I understand, insurance as an investment is a bad idea. The only product that one should buy from an insurance company is Term Insurance. All other forms of insurance product is nothing but wastage of money.
There are different types of insurance products which are available for consumers in the market such as endowment policies, money back polices and ULIPs. All these products are only beneficial for the agents who are selling these to the customers. Agents earn huge amount of commission on these products that are currently available in the market. For e.g. In an Endowment and Money back policy, the commission that an agent earns would be in the range of 20-30% , whereas for ULIPs, commissions are in the range of 5%-7%.
The important thing to note here is that these charges are deducted from your premium amount and are paid to agents as commission.
Anyways, I have decided that I will not purchase any insurance product in future and I have already bought a term insurance. However, the challenge that I had to deal with was regarding my existing insurance policies? Should I continue or surrender my existing insurance policies, be it LIC Jeevan Anand or any other LIC endowment policy?
Now, this is a big decision. It is very difficult to accept that I will lose my hard-earned money if I surrender my LIC Jeevan Anand policy.
But is it always advisable to surrender the policy? The answer is a big “NO”.
The decision to surrender the policy should be purely based on calculations and not on notional mindset that insurance policies are bad.
Also Read : How much term insurance should you buy in India?
Let us discuss some scenarios here to understand, whether to continue or surrender one’s LIC policy.
Let’s take the example of Jeevan Anand Policy from LIC.
Should I surrender my Jeevan Anand Policy from LIC?
Should I surrender my Jeevan Anand Policy if I have paid the premium for 3 years
Policy Features
- Policy Commencement Date: Jan 2016
- Sum Insured – Rs. 7 Lakhs
- Policy Term – 20 years
- Premium Paying Term – 20 years
- Yearly Premium – Rs. 41,206/-
- Date of Maturity – Jan 2036
Scenario 1
Surrender After 3 Years
- Premium paid in 3 Years – Rs. 123,618
- Surrender value after 3 years – Approx. 30% of premiums paid -Rs. 37000
- Vested Bonus after 3 Years – Approx. Rs. 15,000
Assuming the surrender value after 3 years would be approx. Rs. 52,000. Now, should you surrender this policy and take a loss of Rs. 71,618?
If you invest this surrender amount and invest the future premium in mutual funds, what will be the projected earnings? Also, if you continue the policy, what would be the maturity value?
| Surrender and Invest in Mutual Funds for next 17 years | Continue the Policy |
| Lump Sum -52,000 | Lump Sum-0 |
| Yearly Investment – 41,206 | Yearly Investment – 41,206 |
| Assumed CAGR -12% | Assumed Bonus – Rs. 45 per thousand and One-time Terminal Bonus of Rs. 35 per thousand |
| Value in 2036 – 23.7 Lakhs | Value in 2036 – Rs. 13.5 Lakhs |
You will earn a surplus of 10.2 Lakhs after 17 years. Would you surrender?
I am presuming that most of you would definitely say a Yes. In this case, even my answer would be positive. I would suggest that you should go ahead and surrender your policy.
But your agent may lure you to pay one more premium by showing you the surrender factor of next year.
How is surrender value of LIC calculated?
Surrender value of LIC policy is calculated by multiplying the number of premiums paid and surrender value factor attached to it.
It is mostly available in endowment insurance policies. Surrender factor in Jeevan Anand is 0.3 after 3 years and 0.5 after paying 4 premiums.
This means that your surrender value would be 30% of the total premium paid if you surrender the policy after 3 years. But, it would be 50% of the total premium paid if you surrender the policy after 4 years. Do not get confused and fall prey and continue investing in the hope of earning some returns. Surrender the policy right away.
The losses incurred would be still the same. Final Value will be the same as shown in the above table.
It does not make any difference, whether you surrender your policy after the 3rd year or 4th year.
Scenario 2
Surrender After 10 Years
- Premium paid in 10 Years – Rs. 4,12,060
- Surrender value after 10 years – Approx. 57.5% of premiums paid -Rs. 2.37 Lakhs
- Vested Bonus after 10 Years – Approx. Rs. 60,000
Assuming the surrender value after 10 years would be approx. Rs. 2.97 Lakhs. Now, should you surrender this policy and take a loss of Rs. 1.15 Lakhs?
If you invest this surrender amount and future premium in mutual funds, what will be your potential earnings? Also, if you continue the policy, what would be the maturity value?
| Surrender and Invest in Mutual Funds for next 10 years | Continue the Policy |
| Lump Sum -2.97 Lakhs | Lump Sum-0 |
| Yearly Investment – 41,206 | Yearly Investment – 41,206 |
| Assumed CAGR -10%
(Since the time frame to invest is less here) |
Assumed Bonus – Rs. 45 per thousand and One-time Terminal Bonus of Rs. 35 per thousand |
| Value in 2036 – 14.2 Lakhs | Value in 2036 – Rs. 13.5 Lakhs |
You will earn a surplus of 70,000 after 10 years. Would you surrender?
In scenarios like these, it gets complicated. There is no surety of earning 10% returns in mutual funds, At the same time, there is no surety of earning the same bonus in LIC policies for next 10 years. In my opinion, the policy should not be surrendered here. Take this policy as a part of your debt portfolio and continue.
Scenario 3
What Happens after 15 years?
After 15 years, if you invest the surrender value and future premium in mutual funds, you will get around 11.6 Lakhs assuming a CAGR of 10% (though I should not assume CAGR of 10% for 5 years)
In this scenario, you will earn a surplus of 1.9 Lakhs if you remain invested in Endowment policy.
So, the obvious choice is to continue.
Scenario 4
Should I pay my 2nd Year and 3rd year Premium?
Let us understand this with the help of a Table:
Premium Amount: Rs. 41206
| Paid For | Surrender Value | Loss |
| 1st Year | 0 | Rs. 41,206 |
| 2nd Year | 0 | Rs. 82,412 (41206 * 2) |
| 3rd Year | Rs. 52,000 | Rs. 71,618 ((41206 * 3)- 52,000) |
So, if you have paid for 2 years premium, you can pay the third premium and then surrender. But if you have paid only one premium, do not pay the 2nd premium. This is just an example of Jeevan Anand Policy. The conditions in other endowment policies can be different. So, ensure to check the policy conditions before paying the 3rd premium.
Note- These calculations work best if the term of the policy invested is less than 25 years. Policies having term of more than 25 years have one-time terminal bonus of approx. Rs. 450 per thousand sum assured, which definitely makes a difference in final maturity value of your policy.
Surrender or Continue Calculator
You can download and fill in the details in an excel sheet and you will be in a better position to decide on
Should I surrender my Jeevan Anand Policy?
LIC Jeevan Anand Surrender Value Calculator
Conclusion – Should I surrender my LIC Policy?
Are you already asking yourself – Should I surrender my Jeevan Anand Policy from LIC? If yes, then take a wise calculative decision and not a random one. Insurance policies are usually very complex bundled products. Any decision that involves surrender of insurance policies because you have gained some knowledge of mutual funds is never a wise one. Take your own decision, after all money is yours. We can only help you to facilitate and reach towards a wise decision.
Harsha says
February 21, 2019 at 11:12 amSir , i have a doubt .. i read in an article that if we surrender lic jeevan anand policy before 5 yrs there is a chance of reversal of section 80c benefits. Is it true?? Then what would one do ??
MoneyChai says
April 17, 2019 at 6:07 pmHi Harsha
It is true. If you surrender before 5 years, all tax benefits would be reversed.
Raunak Chandiwal says
June 3, 2019 at 5:50 pmHello, I am in confusion whether I continue or surrender it.
The details are below
Policy Started Year – 2009
Yearly Premium Paid – 19523/-
Policy Period is 25 years
Can you please advise what should I do ?
MoneyChai says
June 3, 2019 at 9:43 pmHi Raunak
How many premiums have been paid and how many still has to be paid? What is the surrender value at this point of time?
Ayush says
June 13, 2019 at 12:03 amHi
Do you have calculators for Money Back policy as well , need to take decision on that as well.
Should I surrender my jeevan anand policy as I only paid premium for 4 years and it is 25 years policy , to me apid up makes no sense or should I need to look for paid up option?
Also please help with tax implications if surrendered before 5 years? Thanks
MoneyChai says
June 15, 2019 at 11:54 amHi Ayush
It is better to surrender Jeevan Anand policy. Please send me the details of money back policy to check.
Ajit says
June 29, 2019 at 11:24 pmHi thanks for sharing this information. It is really helpful. I paid three premiums of LIC new Jeevan Anand policy. I am thinking to continue this policy without paying any next premiums either at least till completes 5 years or it matures for prorate basis returns, rather than surrendering now Please suggest about this option.
MoneyChai says
June 30, 2019 at 1:48 amHi Ajit
You are talking about paid-up. What is the term of the policy?
Ajit says
July 2, 2019 at 9:17 pmThank you for your response. Policy term is 21 years. I want to stop paying premium now completed 3 years and will take the prorate basis returns of 3 years premium money after it matures. kindly suggest.
MoneyChai says
July 2, 2019 at 10:04 pmHi Ajit
Surrender it and take the amount. Do not go for paid up value. I know its a loss but take it.
Ajit says
July 5, 2019 at 7:33 pmSure, I will surrender it. Is tax benefit got for last 3 years under 80c will be reversed?
Priti Vyas says
July 24, 2019 at 3:05 pmDear Sir,
I want to surrender my policy which is for more thann 25 years. Annual premium is 1,03000/-
I have paid for 3 years, I desire t o surreder the same but my agent insist on keeping it and does not give me any idea on surrender value. what should I do?
MoneyChai says
July 24, 2019 at 4:24 pmHi Priti
Contact LIC customer care and ask for the surrender value. For surrender, you will have to visit the branch from where you have taken the policy.
Agent will not allow you to surrender as he will lose his renewal commission.
saravanan says
August 28, 2019 at 8:34 ami was joined new jeevan anand on feb 2019 can i surrender now this plan. Yearly 46000 for 21 years. then i invest PPF and NPS. pleaase advise me
MoneyChai says
August 28, 2019 at 11:02 amIt is better to surrender but you will not get anything. Investment in PPF or NPS depends on your goal.
surya says
August 29, 2019 at 7:57 pmHi,
First of all congratulations for all your good work thru this blog.
I have a Jeevan Anand policy (2010) for 3 lakh sum assured and have paid premium of 17000 for 8 years. The policy paying term is 21 years. So another 13 years to pay. Bonus+gauranteed addition till date as per lic customer portal is 118000.
How much approx will I get if I surrender the policy? will it be more beneficial if I invest this 17000 for next 13 years elsewhere instead – Pl. advise.
Thanks
Surya
MoneyChai says
September 4, 2019 at 7:01 pmHi Surya
It depends whether you are comfortable investing in equity?
Anu says
September 13, 2019 at 7:09 amHi,
I have two Jeevan Anand policies starting year 2011 each paying premium of 75,000 per annum. Its been 8 years i have been paying premium to these policies. Also, i have migrated to Australia in past 3 years and i am not sure whether i am still insured being out of India or not. I want to surrender these policies as i am in need of money to buy a property here. But looking at the total surrender value of approximately INR315,000 (30% of 7 year’s premium) my total loss amounts to more than 8 lacs which is a big.
However if i continue with these policies, the amount assured is 15 lacs per policy and agent told me that you will get around 48 lacs per policy by the end of the term. Well, i dont believe that agent entirely now but still i am hoping to get atleast 30 lacs per policy which will be in total 60 lacs. Also, if i continue, i need to pay in total 19.5 lacs over a period of next 13 years as premium to get this 60 lacs on maturity.
Can you suggest me what should i do in the given situation.
MoneyChai says
September 13, 2019 at 10:11 amHi Anu
First, please check the surrender value from LIC office. It would be more than what are you calculating by yourself. Then you can decide whether to surrender or continue.
Anu says
September 13, 2019 at 10:26 amHi Mate,
I Checked it with LIC. Its Rs.371,439 in total. Now please suggest.
Also, we only get 30% of the total premium paid that too excluding first year premium, which will amount to almost the same amount.
now please suggest
MoneyChai says
September 15, 2019 at 12:14 amHi Anu
If you continue the policy, you will get around 28 Lakhs per policy at the time of maturity i.e. 56 Lakhs for 2 policies. That is assuming current bonus rates of 42 per thousand sum assured. Now if you surrender the policy and invest the same in mutual funds, assuming a return of 9%, you will get around 54 Lakhs. Not a wise decision to surrender as only 13 years are left. You can continue.