admin May 26, 2018

Term plans are one of the best investments that you can make for your family. When it comes to term plans, LIC is one among the top contenders since it has something for every individual’s needs and financial requirements. The LIC term plans are so comprehensive and simple that you won’t feel the necessity to surrender your policies. Even otherwise it is not advisable to surrender your policy as the surrender value associated with it will definitely be considerably lower than the premiums paid so far.

Also, if you plan to buy a life insurance policy at a later stage in your life, you can only get it for a higher premium based on your current age. That being said, what if you decide to surrender your policy before maturity for some reason? Are you aware of the surrender value that you are eligible for the LIC term plan you currently hold? Read on.

Difference in Surrender Values in LIC Term Plans

Sometimes after buying a term plan, you may find it is irrelevant and may plan to surrender it off. The best part about this surrender value is that you can take a loan against it. However, not all LIC term plans can fetch you surrender value especially those without a savings quotient which will just lapse. There are two kinds of surrenders that you can do:

#1. Guaranteed Surrender Value

This is the basic version of surrender which can be done on completion of 3 years of the policy. You would be eligible for a surrender value equal to 30% of the total premium amount paid minus those paid in the first year and additional premiums paid for term rider or accident benefits. It also excludes any tax or bonus you have received.

#2. Special Surrender

If you have paid premiums for more than three years of the policy coming to force, then you are eligible for the special surrender value. This is essentially higher than the guaranteed surrender value and would depend on the number of years after the initial three years that the premiums have been paid and the duration of the policy. The special surrender value is computed using the following formula:

Special Surrender Value = Total Paid Up Value*surrender value factor

Here, the paid up value is the number of premiums paid divided by the total number of premiums applicable to the policy multiplied by the sum assured. For example, if you have paid 10 premiums annually for a policy of duration 20years with a sum assured of 5lakhs, then your paid-up value would be (10/20)*5,00,000=2.5lakhs. This would be the sum assured if you continue your policy after the 11th year.

This added to your accrued bonus would be your total paid-up value. The surrender factor would be determined by LIC based on the term plan you have invested in and the policy term.

Now, you may be interested in knowing the process amount of loan and the steps involved in getting a loan from LIC against your surrender value.

Steps To Buy a Loan in LIC Term Plan

For all term plans, you can get a loan of around 90% (85% if it is a paid-up policy) of the surrender value. Apparently, you are eligible for these loans after completion of the third year of the policy term.

#Step 1. Pledge the Policy as Security

You have to assign your LIC term plan as security to claim the loan amount. This would be retained by them until the repayment of the loan. Fill and submit Form 5196 for a new loan or Form 5205 for a follow-up the loan.

#Step 2. Pay Interest

The loan repayment can happen till the maturity of the policy. Ideally, it is the interest that you would be paying till the maturity of the policy after which your principal or outstanding loan amount would be deducted from the maturity or death benefit you or your family would be receiving. You may choose to pay both the maturity and the interest together as well.

A third scenario would be borrowed for a short period (minimum 6 months) and pay interest for that period only and then close the loan account. The current rate of interest for such loans is around 10.5% charged annually.

In case you default your repayment, LIC holds the rights to foreclose your policy and settle the loan amount from the proceeds.

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