Got an insurance policy? Know the cost of surrendering it
₹5 lakh. It’s important to note that any deduction claimed under Section 80C of the income tax Act will be reversed if the policy is surrendered within two years." said Prakash Hedge, a Bengaluru-based chartered accountant.
Once you have made the decision to surrender, you also have to navigate the complex set of procedures that insurers have created to discourage surrender of policies. Often insurers insist that you must visit the insurer’s office in person.
This can become an issue if you have moved to a different city or are outside India. The decision on surrendering an insurance policy or not does not require complex calculations.
You have to make an estimate of the returns you will get in a competing product (say, a hybrid mutual fund) if you were to divert future premiums to the mutual fund instead of using them for the insurance policy. What about the insurance cover? You should account for this in your calculation by assuming that you will couple the hybrid fund with a term insurance policy.
Term insurance premiums are a small fraction of endowment policy premiums because term insurance has no maturity value—it only pays out to your family if you die during the policy term. In case you are not able to do this calculation on your own, it is better to consult a Sebi-registered investment adviser.
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