If policyholder surrenders an insurance plan online, then fund value minus surrender charges is paid to the insured person by an insurer. Insurance companies in India mention a lock-in period, generally three years and five years for ULIPs, before a plan can need a surrender value.
Usually, full premiums are paid during this time span. In case a plan is surrendered before the completion of lock-in period, then insurer deduct the surrender charges from the fund value based on the duration for which the insurance premium has been paid. Below are five facts to consider while surrendering a policy:
Request Form
First of all, the insured person must fill and signed a surrender request application. Then, submit it to the respective insurance company in India, stating the name, contact details and policy number.
Other Necessary Documents
Policyholders need to submit the original policy document, self-attested KYC documents, bank account details and a cancelled cheque leaf of the account where the money is to be deposited.
Reason for Surrender
The insurer needs to know the reason behind surrendering a policy. Policyholders may have to mention financial reasons, purchasing of an alternative plan and unsatisfactory services or return etc.
If all the needful are done within the given timeframe, then the surrender request will be processed within seven working days after receiving the request.
If valid pan is offered, then TDS will be applicable at two percent. But, it will hike to around 20 percent if valid pan is not available with the insurer.
Points to Consider
Surrendered policy can be reinstated.
Insurers may publish the policy surrender value periodically.
Under term plan, the feature of savings component is not available and hence, loan, paid-up or surrender values are granted for these insurance products.