LIC Rule : Jeevan Bima i.e. Life Insurance is not just an investment option but is considered as a strong foundation for a secure future of the family. However, many people find it difficult to pay the premium in the changing financial situation.

In such a case, the question arises in the mind of many whether to close the LIC or any other life insurance policy itself. But according to experts, a hasty decision to surrender the policy can lead to huge financial losses.

In the insurance sector, the process of canceling a policy before its expiry and getting money back from the insurance company is called “policy surrender”. Most policy holders feel that they will get back the entire premium paid.

But in reality the amount received by the company is the “surrender value”, which may be much less than the total premium paid. Surrender charges, administrative expenses and other deductions are made as per policy terms.

The biggest disadvantage of surrendering the policy is immediate loss of insurance cover. In case of death of the policyholder after this, the family does not get any death benefit.

That is, the purpose for which the insurance was taken remains unfulfilled. Especially since there is no savings component in term insurance, there is no refund or protection if you leave the policy.

In the initial years of the policy, a major portion of the premium goes towards agent commission and administrative expenses. Therefore, if the policy is closed in the first 2 to 4 years, the surrender value is very low. Moreover, bonuses and loyalty additions in endowment or money-back policies are also canceled on surrender.

According to experts, if it is not possible to pay the premium, one can opt for “paid-up” instead of surrendering the policy. In this the policy continues at a lower sum assured even after stopping the further premium.

Recently IRDAI has changed the rules and increased the surrender value in some cases. So it is very important to know the surrender value and paid-up value before taking the final decision.