LIC Surrender or Pay-Up: What You Need to Know

If you're exploring whether to surrender your LIC policy or make it paid-up, you're not alone. Many investors find themselves questioning older insurance decisions, especially if they were driven by tax-saving, poor advice, or sales pressure. But surrendering impulsively could mean taking a major hit. Before making the move, assess where you are in your policy, what your goals are, and what you’re really trying to achieve.

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How an Investment Expert Can Help

Analyse Your Current Policy Stage

An expert can help you understand how many premiums you've paid and what benefits you've accumulated so far

Match the Exit Strategy to Your Goals

Whether you should surrender, go paid-up, or continue depends on your goals, age, and risk tolerance. A financial expert will break this down for you

Reinvest Smartly

Don't just stop the policy, know what to do with the money next. An expert can help you map your surrender value to high-growth alternatives like SIPs

Nilesh Shah

President and MD

The company's 'Dreams into Action' platform is another feather in their cap. It revolutionizes the investment process, making it accessible and interactive. Coupled with their top-notch team that provides hyper-customized financial solutions, they set an example for others in the industry.

Why So Many People Exit LIC Policies Early

Traditional LIC policies often offer low returns, especially when compared to mutual funds. When this becomes evident, many investors exit.

Many LIC policies are sold without proper planning. Tax saving at year-end shouldn’t be the only reason to buy a financial product.

The rise of SIPs and term insurance has helped investors realise that there are smarter, more transparent options out there.

A policy taken in your 20s may not align with your needs in your 30s or 40s. Changing life stages often trigger policy review.

Most investors don’t fully understand surrender values, bonuses, or paid-up structures until it’s too late.

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“A professional company that makes it their personal goal to make you financial dreams come true. The advisors are really thorough in their approach and are keen to help you out. They devote a lot of time and plan your financial journey well. I really like the way they personally get into your journey and assist you in understanding the various issues pragmatically. The time they devote towards discussions and comprehending your requirements and then coming out with a plan is great. Overall a great company to wade through the market jargon and successfully reach you own aims. My advisor is Ms Yashika and she is definitely one professional lady with excellent knowledge and understanding of what she is doing. Her insights into financial thought process has led to me being stable and standing at a higher ground in last few years especially during tumultuous last few years. She has always guided me well and given me a POV that's beneficial for me rather than telling me to get into more funds that can help her company to grow.”

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When Paying Up Makes Sense

Converting your insurance policy to paid-up status isn’t always the first option investors think of, but in certain situations it can be the smarter move. Here are some scenarios where going paid-up makes sense:

You've Paid 3+ Years of Premiums

Most traditional LIC plans allow you to convert your policy to paid-up status after 3 years of premium payments

You Want to Avoid Booking a Big Loss

If your policy’s surrender value is far below what you’ve paid, going paid-up could be a way to salvage some benefit without writing off everything

You Don't Need the Liquidity Now

Paid-up policies retain a death benefit and accumulate bonuses until maturity. If you can afford to wait, this might be better

Mr. Pratheesh Gangadhar's Dreams into Action

"I started investing through FinEdge around 9 years back and back then had limited understanding on aspects of my personal finance. I wanted to start with my investments as at that point of time it seemed like the right thing to do. However, through this period of investing I realised that to invest is the easiest thing to do but to stay invested can sometimes be tough.

When I got into a detailed discussion with my Investment Manager, I started getting more clarity and understanding on my own personal finance. I created a goal for purchase of my house in Bangalore and started investing towards it."

~ Pratheesh Gangadhar, Bangalore

When Surrendering Could Be the Better Move

You Have 15-20+ Years Left on the Policy
Instead of waiting for maturity, surrendering early and reinvesting could result in a higher corpus long-term.
You're Young and Healthy
If you're in your 20s or 30s, replacing lost insurance with a term plan is easy and affordable.
Your Policy Has Crossed the 30-40% Premium Mark
Surrender values increase significantly beyond this point, making exit less expensive.
You Have High-Return Reinvestment Options
Mutual fund SIPs, when aligned to long-term goals, can outperform traditional policies.

Use this simple decision tree to evaluate your LIC exit:

A qualified expert can help you interpret this correctly.

Why Choose FinEdge

FinEdge’s goal-based investing platform, Dreams into Action (DiA) blends cutting-edge tech and human expertise to provide unbiased investment guidance.

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FAQs

What is the surrender value of my LIC policy after 5 years?

Surrender value typically ranges between 30-50% of premiums paid after 5 years, but varies by policy. Check your benefit illustration or consult an advisor.

Is it better to make my policy paid-up instead of surrendering?

If your surrender value is very low and you don't need the cash now, making the policy paid-up may be the better option.

What should I do with my surrender proceeds?

Map the amount to your financial goals and consider long-term SIP investments with expert guidance.

Can I exit my LIC policy after just 2 years?

For most policies, surrendering before 3 years means you get nothing. Consider going paid-up only after completing the minimum required premiums.