If You Cancel Your LIC Policy Midway….How Much Money Will You Lose
LIC Policy: We all buy life insurance for the secure future of ourselves and our families. However, sometimes financial circumstances arise in life when bearing the burden of premiums becomes difficult. In such situations, the thought of canceling or surrendering the policy midway is very natural. If you are also planning to cancel your LIC policy before maturity, stop. Surrendering the policy not only ends your coverage but can also result in the loss of a large portion of your accumulated capital. Understanding this entire process and its advantages and disadvantages is crucial.
What is Policy Surrender?
In the world of insurance, when you cancel a policy before its stipulated term and ask the insurance company for your money back, this process is called 'policy surrender'. People generally think that they will get back all the money they have paid as premiums. But the reality is different. The amount the company returns to you is called the 'surrender value'. This amount can be significantly less than the total premiums you have paid. The policy documents mention surrender charges and other deductions, which people often overlook. As a result, the money saved for help in times of need is returned in a much smaller amount than expected.
Not just money, but the safety net also ends
The biggest and most serious disadvantage of surrendering a policy is not financial, but in terms of security. As soon as you surrender the policy, your life insurance coverage ends immediately. This simply means that if something unfortunate happens to the policyholder in the future, their family or nominee will not receive any death benefit. The very purpose for which you took out this policy years ago remains unfulfilled. The situation is even more critical in the case of term insurance.
Why is a large portion of your savings deducted?
Policyholders often ask why they don't get all their money back. This is due to the mathematics of insurance. A large portion of the premium you pay in the initial years of the policy goes towards agent commissions, administrative costs of issuing the policy, and underwriting charges. This is why if someone cancels their policy within the first 2 to 4 years of its inception, they suffer a significant loss.
What is a better option than canceling the policy?
If you are facing financial difficulties and paying premiums is difficult, canceling the policy is not the only option. You can make your policy "paid-up." This is a kind of middle ground. In this, you stop paying further premiums, but the policy does not terminate. It continues until maturity with a reduced sum assured. Although the benefits received are reduced, your coverage does not completely end.
Additionally, the insurance regulator IRDAI has recently made some changes to the rules, which may allow policyholders to receive a slightly better surrender value in certain circumstances than before.
Summary
Breaking the LIC policy prematurely not only results in the loss of a significant portion of your accumulated capital, but also eliminates your family's financial security. Before surrendering your policy, be sure to understand the pros and cons and the correct process.
