There are few situations in which you get confused whether you should surrender your endowment or money back life insurance policy or not. The reasons for surrendering can vary from choosing the wrong insurance policy, financial issues not allowing you to pay premiums on time or better tax saving options being offered by another policy. Whatever the cause behind the surrender of an existing insurance policy, there are several options that are available for you.
It is possible to let the policy lapse
If you stop paying premiums of your existing insurance policy, then your policy will lapse or became paid up. In such case the chances of losing term insurance policy are much higher and you will not be liable to take any advantage of the same. If your policy lapsed due to the financial crisis, you can renew it again, if you wish to, by paying premiums in arrears along with interest. It is advisable though, to not let your policy lapse as existing benefits will also lapse with it.
Surrender the policy
There is an option in which you can exit the policy before the maturity time by surrendering the policy. In this case, the insurer will pay some amount to you that will be known as surrender value. You will be liable to take advantage of it after completion of three years. There are some factors that determine the surrender value such as
- The amount of premiums paid as a percentage of the entire number of premiums allocated over the time of the policy
- Sum assured amount of the plan
The calculation of surrender value varies from insurer to insurer. You must note that the value of surrender will be more than the Guaranteed Surrender Value and the Special Surrender Value. You must keep in mind that not all life insurance companies reveal the surrender value factor in the policy documents, product catalog or in the website. It is advisable for you to take advantage of the same from your insurance adviser or from the insurer.
You can make the policy paid up
Now you should understand what is paid up. It is a feature that allows you to not pay premiums, while not terminating the policy as well. In this case, after you have made a particular minimum number of premium payments, you can carry on the policy till maturity without paying any further premium payment. You will be able to receive life cover through the maturity of the policy, but the amount of sum assured will be deducted as per the paid up value.
What To Choose: Surrendering the policy or making it paid up
The option of paid up is looks better than surrendering the policy because you have paid much more in the form of premiums than the surrender value. However, we can’t neglect the benefits of surrendering. If you have the potential to re-invest the proceeds received as a surrender value in better investment opportunities, then you may be able to make higher returns compared to making your policy paid up.
For getting the best policy, one should always buy life insurance plans online. By comparing life insurance policies online, you increase your chances of coming across many options of best life insurance plans in India.