Monday, December 1, 2014

Surrendering an insurance policy

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Surrendering an insurance policy

If one closes an insurance policy, a surrender value--fund value minus surrender charge--is paid to the policyholder. Insurance companies prescribe a lock-in period, typically three years (five year for Ulips), before a policy can acquire a surrender value. Full premiums must be paid during this period. If a policy is surrendered before the end of the lock in period, surrender charge is deducted from the fund value. The surrender value is a percentage of the fund value depending on the period for which the premium has been paid.

Request form

The policyholder must submit a filled and signed surrender request form, stating the policy number, name and contact details.

Other documents

The original policy document, bank account details, a cancelled cheque leaf of the account where the amount is be deposited and selfattested KYC documents must be submitted along with the form.

Reason for surrender

The insurance company will ask for the reason of surrender. One may state financial reasons, unsatisfactory returns or services, and buying of an alternate policy, among others.

Timeline

The request for surrender will be processed within seven working days after receipt of the request, if all requirements are fulfilled.

TDS

TDS will be applicable at 2% if valid PAN is provided, but it will increase to 20% in case valid PAN is not available with the insurance company.

Points to note

Once a policy is surrendered, it cannot be reinstated.

Insurance companies may publish the surrender value of the policies periodically.

A term policy has no savings component and, hence, no surrender value, loan or paid-up values are granted under these policies.


 

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