How To Review Your ULIP Investments Before Surrendering

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at

Do you belong to a group of those people who bought a life insurance policy a few years back expecting it to deliver good returns and are regretting your decision since then cursing the sales executive who sold you a useless policy as the returns have not met your expectations?

If yes, then I’m sure you must have thought of doing something with your policy – either surrendering it or stop paying further premiums for it or consulting a financial advisor to discuss other alternatives before taking a final decision. Whatever you have done since then, I hope this article will help you in making further progress in the right direction.

First of all, there might be different reasons for different investors to explore the option of discontinuing their life insurance policies. Some of them are:

1. Unsatisfactory performance of the current life policy, as it was initially sold to you by a sales executive/relationship manager showing a very rosy picture or you bought it with a very little understanding

2. Not making financial sense to you anymore, as you have become more financially literate now and with better understanding of the markets and the products you have a view that ULIPs are not for you

3. ULIPs are too complicated for you to continue, as you don’t understand the various kind of charges involved in it, where your money is getting invested and other things involved in ULIPs

4. Availability of better investment options like mutual funds, gold or real estate and you have a shorter term horizon to invest

Options available to you

  • Surrender the policy and withdraw the whole of the Surrender Value or Fund Value
  • Stop paying further premiums, withdraw majority of the invested amount, keep the policy running and enjoy the life cover. This option is available only with old ULIPs.
  • Get the policy fully paid-up (in case of traditional policies)
  • Do a self-assessment (be your financial advisor for your investment)
  • Keep paying the premiums as you are convinced ULIPs outperform Mutual Funds in the longer run.

Before we move any further, we first need to understand the various charges attracted by these ULIPs. You can check these charges applicable to your ULIP in the “Sales Benefit Illustration” or the product brochures. A sales benefit illustration illustrates various charges, year by year, for the term of the plan so that you know where your money is exactly going, how much money is deducted as charges and what is finally getting invested. Here is the link to check a sample of a sales benefit illustration:

1. Premium Allocation Charges – These charges account for the initial expenses incurred by the company in issuing the policy e.g. cost of underwriting, medical tests and expenses related to distributor/agent fees. These are deducted upfront from the premium either annually, half-yearly, quarterly or monthly depending on the frequency of the premiums.

2. Mortality Charges – These charges refer to that part of the premium which goes towards the death benefit and are recovered by cancellation of units on a monthly basis.

3. Policy Administration Charges – As the name suggests, these are administrative charges and are recovered by cancellation of units on a monthly basis.

4. Fund Management Charges – These are the charges incurred to manage the investment portion of your premium and vary from fund to fund depending on the percentage of equity component in the fund.

5. Surrender Charges: These charges are deducted for premature surrender/termination of a policy and are capped at 15% from September 1, 2010.

Surrender Value: It is the sum of money an insurance company will pay to the policyholder in the event he/she voluntarily terminates or surrenders the policy before its maturity or the insured event occurring. In other words, it is the amount payable to the policyholder should he/she decide to discontinue the policy and encash it. This cash value is the savings component of most permanent life insurance policies, particularly whole life insurance policies. This is also known as ‘cash value’ and ‘policyholder’s equity’. The life cover provided by a life insurance policy ends with its surrender as it effects a termination of the contract between the insured and the insurer. Surrender Value = Fund Value – Surrender Charges

Fund Value: The value of the investment portion of your life insurance policy is known as Fund Value. Till the time surrender charges are applicable in ULIPs, surrender value is calculated by deducting the surrender charges from the fund value. Fund Value is paid in full once the surrender charges cease to exist, usually 5 years in new ULIPs. Fund Value = Total no. of units under the policy * NAV of the fund chosen

Let us also take a look at the rules that have been there before and after an important date in the history of ULIPs.

Rules governing ULIPs bought before Sept 1, 2010

Lock-in period of 3 years: Policies taken before September 1, 2010 used to have a lock-in period of 3 years only, after which you were allowed to surrender your policy and take away the fund value after getting the surrender charges deducted.

Surrender Charges: Surrender Charges used to continue after the lock-in period of 3 years. In some policies, these charges continue even after 5 years.

Minimum Premiums Payable: Three

Cover Continuance: This feature was available in older ULIPs wherein you were allowed to continue with the policy even after paying premiums only for the first three years. Your money remains invested in your choice of fund option and the mortality charges will be deducted to maintain the life cover. This was due to mis-selling by intermediaries. Life cover continues even after you surrender the policy or stop paying policy premiums.

Charges: Charges are relatively higher.

Rules governing ULIPs launched on or after Sept 1, 2010

Lock-in period of 5 years: The so-called New Ulips, which have been launched on or after September 1, 2010, carry a lock-in period of 5 years i.e. you’ll get the fund value only after 5 years if you’ve paid the premiums for all the 5 years. If you surrender the policy without paying even 5 premiums, then also you’ll get the surrender value only after 5 years but in that case your money will earn only 4% p.a. interest.

Surrender Charges: Surrender Charges cannot be levied after the lock-in period of 5 years if the policy term is 10 years or less and after 6 years if the policy term is more than 10 years. If you surrender after paying only the first premium, the maximum surrender charges as per IRDA can be Rs. 3000 (for premiums up to Rs. 25000) or Rs. 6000 (premium above Rs. 25000).

Minimum Premiums Payable: Five

Cover Continuance: The new ULIPs don’t offer this feature. If you stop paying premiums after the lock-in period, the policy will be discontinued and the value will be returned to you. Life cover ceases once you surrender the policy or stop paying policy premiums. It was one of the best features with the older ULIPs but I fail to understand why it has been removed from the new ULIPs altogether. The agents used it extensively to mis-sell ULIPs by telling their clients that they just need to pay only three premiums and after that they can either withdraw the investment or the life cover will continue even they don’t pay further premiums.

Charges: Charges are relatively lower

What to look for before surrendering your policy – step by step process:

  • Check whether the policy is bought before or after September 1, 2010
  • Check the various charges deducted till date: “Premium Allocation Charges”, “Mortality Charges”, “Policy Administration Charges”, “Fund Management Charges” etc.
  • Check the Surrender Value or Fund Value by making a call to the customer care centre or online logging into your account
  • Check the various charges to be deducted in the forthcoming years and do a self-assessment to decide whether the charges are justifiable for you to continue with the policy
  • Do a background check of the fund manager before you continue with your existing ULIP – who the fund manager is and what is his/her qualification? How long has he/she been in the fund management business and how has been his/her performance history?
  • Compare the performance of the fund vis-a-vis some of the good performing diversified mutual fund schemes over a period of one year, three years, five years and since inception. ULIP returns should be easily available on the company’s website. If the fund is underperforming consistently, you should seriously consider discontinuing the policy.
  • Compare the mortality charges of your ULIP with a good term plan with the same Sum Assured. Newer ULIPs usually carry high mortality charges as they don’t come under the cost caps, which gives insurance companies an opportunity to have a high margin on the mortality cost. It is most likely that the term plan would be offering a cheaper option to cover your life. If that is the case, then I think you should get your ULIP discontinued by encashing the fund value.
  • Take the help of a financial planner in case you are not able to understand the charges or the performance of the funds before taking final decision.

Reasons why you should not surrender your ULIP:

Most of the older ULIPs either carry very high costs in the initial years or have steep surrender charges or both. It is only in the later years that charges become somewhat reasonable and more money gets invested. So it would be a bad idea to surrender ULIPs with high costs in the initial years and a penalty for discontinuance.

There are a few old ULIPs, in which the policies carry surrender charges almost till the end of the policy term. You need to check your policy, the surrender charges involved in it and then decide whether it is worth surrendering or keep the policy till its maturity.

If you have taken one of the old ULIPs, then your life will remain covered even without paying further premiums with the “Cover Continuance” feature. In that case, if the mortality charges of future years are reasonable, then you may stick to your policy and hope the fund is managed in an efficient and professional manner.

As I mentioned earlier, you should not surrender ULIPs if you are convinced ULIPs outperform Mutual Funds in the longer run.

Reasons why you should surrender your ULIP:

There is lack of transparency in almost all sections of their workflow.

Fund managers of almost all ULIPs have failed to deliver and there is no certainty whether they will be able to deliver in the future years also.

Premium Allocation Charges will remain quite high in future years also which eat up a significant portion of your principal investment.

Term plans are the best insurance plans to get your life insured.

It is better to invest in investment avenues like mutual funds, Gold ETFs, PPF etc. or to pay-off any of your loans which carry a higher rate of interest than your ULIPs will deliver.

Documents you need to submit for policy surrender:

  • Policy surrender form – it should be easily available on the company’s website
  • Policy bond
  • A self-attested copy of your ID proof
  • Any cancelled cheque or bank attested bank statement or bank attested passbook copy for fund transfer

I have a personal view that one should never mix his/her investments with insurance. But, if somebody has already done that then the best option is to try not to surrender the policy in a real hurry, keep it alive as long as possible, study all the features and charges of your policy thoroughly and reap the maximum benefits out of it. It is generally advisable that you should wait for a longer period before surrendering your policy, as this will ensure the higher initial charges are spread out. But, if after doing the extensive research, you have decided to surrender the policy, then you should visit the nearest branch office of the company to surrender your policy along with the above mentioned documents.

86 thoughts on “How To Review Your ULIP Investments Before Surrendering”

  1. I had purchased a Market Plus Growth policy of lic under the plan 181-10-01on 31-03-2008 for Rs25000 fully paid.What is its current value and how can I get the payment related to it.

  2. Dear Sir,
    I have a ten year wealth builder policy post 2010, and have paid all the 5 yearly Cremiums. I want to surrender it. I availed of tax benefit under section 80C in all those years. Will there be tax liability on the sum received on surrendering ?

  3. Hi,

    I got HDFC SL crest nav on 22.08.12 with an annual premium of Rs.50,000 and now premium is also over. Now the fund value is Rs.2,87,000. Should I continue or surrender ? Pls suggest…
    Najmal Khan

  4. Dear Sir,
    In Aug 2008 I had taken ICICI Prudential lifetime insurance policy. I paid one-time three lump-sum premiums in Aug 2008, Aug 2009 and Aug 2011, respectively. Did not pay in 2010. It is now about 9 yrs since I started this policy. Now I would wish to terminate and exit the scheme. Am I liable to pay income tax on the proceeds or not?
    In the event I need not have to pay any tax on the total withdrawal proceeds, can you pls indicate the relevant IRDA clause that provides clarity on this issue.
    Thanks and Regards

  5. Dear Sir,
    In Aug 2008 I had taken ICICI Prudential lifetime insurance policy. I paid one-time three lump-sum premiums in Aug 2008, Aug 2009 and Aug 2011, respectively. Did not pay in 2010. It is now about 9 yrs since I started this policy. Now I would wish to terminate and exit the scheme. Am I liable to pay income tax on the proceeds or not?
    In the event I need not have to pay any tax on the total withdrawal proceeds, can you pls indicate the relevant IRDA clause that provides clarity on this issue.
    Thanks and Regards

  6. I have purchased a ULIP policy from Max Life. I paid only three years i.e. 2008 to 2010 because the agent told me that three years would be sufficient or no need to pay after three years. After so many revival reminders from the insurer I have not deposited further premium. In 2014 the insurer without informing me terminated my ULIP policy. as I was at the loss so I did not surrender the policy but keeping watch on my policy I found that they are deducting charges regularly. Can they deduct the charges in a terminated policy. As no insurance cover was there.
    Please reply.

  7. sir i have take a ulil plan of sbi life insurence before two weeks .i have invest 30% balanced and 70% equity.but after seeing your article i wants to wedraw my plan plz suggest me its right are not . if i witdraw how many amount we got

    1. Hi Sanjay,
      Insurance companies are required to provide 15 days free look period for all their policies. You should visit SBI Life branch and surrender it today itself. It would have no or minimal charges for the same.

  8. Nice Article, I personally believe that a person should buy Term Insurance rather then Endowment policy or Money Back policy, you can also read this How Much insurance do i need which would give you practical life example of being under insured and implications of being under insured

  9. Dear shiv


    I had taken in year 2011 and in march -15 its locking period got over
    I have paid Rs.20,000/- p.a. (total principal Rs.100,000) , current NAV is around 138,000 after five years.

    please suggest what should I have to do with my policy weather should continue or discontinue.

    and if have to discontinue than where should I have to invest my fund further.

    also please help to understand best possible manner to discontinue this policy so that charges should be minimum as I got very low return in this policy against insurance for Rs.200,000 only.

  10. HI Sir,

    I am very confused whether I should surrender my HDFC ULIP plan or not.
    I bought Two HDFC Life pro growth plan for a lakh of each last year 2014.
    Total investment was 2 lakh. However today total value is now 184000.
    I am not sure what should I do. Shall I surrender the plan or wait for 5 years?

  11. Hello Mr Shiv,

    I came across this site and find it very useful…

    I have one query , I bought one ICICI Life time pension policy and I surrender it after 10 yrs but they deducted 33% tax and they say since I am an NRI so 33% tax .


  12. sir/madam
    I have been saving since 2009. its a 10 years saving investment plan, so I just want to ask if it is possible to can get a little amount of money like R6000, as I’m in need of money desperately so. is it possible to can get the money while I’m still saving?

    godfrey machaba

  13. I have a concern about aegon rleigare Imax which I bought 14/02/2013. I pay 80k per annum and get a guranteed life cover for 24 lakhs. Please suggest whether I should stop it or continue paying. My policies has three premium paid till now, which is 2.4 lakhs. the policy value is about 3lakhs.
    Is this worth continuing as after reading the above, I feel I should invest in mutual funds thru fundsindia and I have pure term insurance in UK where I am based. I think this ULIP is not worth keeping, as I have a pure term insurance some where else. This policy has lock in period of 5 years, so two more years to pay in and then free to discontinue, should I stop it now or wait for 2 more years or just continue to keep paying for 15years.

  14. Dear sir plz go through the following para and advise me the best. I dont want to continue the policy. If i surrender now will i get the sum assured amount mentioned below.

    Intimation of Policy Paid-up and Reinstatement Quotation –
    Policy No. 15179363
    Plan: HDFCSL ClassicAssure UIN: 101N076V01
    Dear Mr. Dipankar Jyoti Gogoi,
    Greetings from HDFC Life!
    Know why paying your premium is important
    This calculation is valid only for 15 days from the date of issuance of this communication i.e 21/06/2015.
    For payment made by local, outstation cheques as well as other modes except cash, the policy will be reinstated subject
    to clearance of the instrument or transaction success.
    Description Amount in INR
    Outstanding Premium
    Less: Amount lying in policy/ Advance payment made (if any)
    Net Amount Payable
    Service Tax/Educational Cess/GST on Outstanding Premium
    Reinstatement Fee (Inclusive of Service Tax + Education Cess/GST)
    Insurance policies are designed to help you in wealth creation, plan for your children’s education as well as help you
    prepare for retirement. This can be possible only through regular and long term investment. We therefore advise you to
    stay invested!
    To reinstate your policy, simply deposit the outstanding amount as mentioned below:
    We wish to inform you that we have not received the premium due for the policy mentioned above on 21/05/2015. As a
    result of this, the policy status has changed to Paid-up.
    The Sum Assured of your policy has reduced to INR 183,447.00 with effect from 21/05/2015.
    As long as your policy is in Paid-up state, it will not be able to participate in the bonuses declared by the company. We
    will also be unable to accept any major policy alteration request.
    For any queries or clarification, please contact us at any of the touch points mentioned in the footer.
    We’ll be glad to hear from you!
    Thank you.
    Yours sincerely,
    Authorised Signatory – HDFC Life
    1860-267-9999 SERVICE to 5676727 (charges apply)
    Available all 7 days from 9 am to 9 pm
    (Local charges apply). DO NOT prefix any country code e.g.+91 or 00.
    Insurance is the subject matter of the solicitation.
    11th Floor, Lodha Excelus, Apollo Mills Compound, N.M.Joshi Marg, Mahalaxmi, Mumbai -400 011. Board line no. +91-022-66682666.
    Regd.Office: 13th Floor, Lodha Excelus, Apollo Mills Compound, N.M.Joshi Marg, Mahalaxmi, Mumbai – 400 011.MSCN0291521051414 CIN : U99999MH2000PLC128245
    Cmh Area Qtr No 1670 B Nr
    Sishu Niketon Bpo Digboi
    Dist Tinsukia
    Assam – 786171
    Mr. Dipankar Jyoti Gogoi
    Email ID:
    Contact Number(s):

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