Should I surrender my insurance policy?

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Are you wondering what to do with your insurance policy? Neither did it deliver on promise of high return nor does it provide you with adequate insurance cover? Is surrendering the right option?

Unit Linked Insurance Plans

Life insurance is a long-term agreement. If the policy is discontinued in the middle it can affect your long-term financial goals. But if you cannot circumstantially continue, here are four important points you need to know before surrendering a ULIP :

• The insurance company deducts Rs 1000-Rs 6,000 from your investments as penalty if you opt to surrender your policy within five years.
• What is most important to know is that you will not receive the money immediately. The insurance company gives out money only after completion of 5 years.
• The money will move out from your policy to a discontinuance fund, earning you 3-4% till the policy completes five years.
• And, yes, your insurance cover will stop as soon as you surrender your policy.

Hence, do not surrender your policy within five years. Even if you want to invest the money somewhere else the company would not transfer money to your account.  

Traditional Plans

If you want to surrender your endowment policy then you can opt for the option  usually after 2-3 years. On surrendering the policy, you are either paid guaranteed or special surrender value. The amount is paid immediately and your life cover will cease to exist. There might be tax implications depending on the year of surrender.

Guaranteed value is mentioned in the policy documents and is generally paid after the completion of two-three years. It is generally 30% of the premium paid excluding the first year premium.

Special surrender value is calculated according to the following formula:

Surrender Value = [{(number of premiums paid/number of premiums payable)  x sum assured} + accumulated bonus] x surrender value factor.

Money9 says you should understand the purpose of a life insurance policy and how it works so it is advisable to make it run its full course.