Consider this before surrender your PLI Policy
If you have a Postal Life Insurance Policy and looking to surrender the same, before surrendering your PLI you should consider the few important points that we will discuss here in detail so that you can make a conscious decision before surrendering your Postal Life Insurance policy.
Postal Life Insurance (PLI) is a popular insurance scheme offered by the Indian Postal Department. It provides individuals with an opportunity to secure their future financially and protect their loved ones in case of unfortunate events.
However, there might be situations when policyholders decide to surrender their PLI policy due to various reasons. Here we will explore whether you consider surrendering a postal life insurance policy, discuss the impact of surrendering, and present alternatives to consider before making this decision.
Overview of Surrendering a PLI Policy:-
Surrendering a PLI policy refers to the act of terminating the insurance contract before its specified term and receiving the surrender value in return. The surrender value is the amount payable to the policyholder upon surrendering the policy and depends on the duration for which the policy has been in force.
Eligibility for Surrendering a PLI Policy:-
Normally postal life insurance policies are considered for surrender if the premium is paid up to 36 months from the date of acceptance of the policy, certain PLI policies like AEA have no surrender option.
Reasons for Surrendering a Postal Life Insurance Policy
There are several reasons why individuals may choose to surrender their PLI policy. Understanding these reasons can help policyholders make an informed decision about whether surrendering is the right choice for them.
i. Financial Difficulties
Financial difficulties can arise unexpectedly, making it challenging for policyholders to continue paying premiums. In such situations, surrendering the policy might seem like the only viable option to free up funds.
ii. Inadequate Returns
Policyholders may find that the returns from their PLI policy are not meeting their expectations or investment goals. This dissatisfaction with the policy’s performance could prompt them to surrender it in search of better investment opportunities.
iii. Changing Life Circumstances
Policyholders may find that their insurance needs have evolved, and the benefits provided by the PLI policy no longer align with their current situation. Surrendering the policy allows them to explore other insurance options that better suit their requirements.
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4. How to surrender a Postal Life Insurance Policy
Surrender Value Calculation: The surrender value of your PLI policy depends on various factors, such as the duration for which the policy has been in force, the sum assured, and any accrued bonuses. The post office will perform the necessary calculations to determine the surrender value. The same can be checked here.
It is important to note that surrendering your PLI policy will result in the termination of your insurance coverage and the cancellation of all associated benefits. Additionally, surrender charges may be applicable, depending on the terms and conditions of your policy.
Impact of Surrendering a Postal Life Insurance Policy
Before proceeding with the surrender process, it is crucial to understand the potential impact it may have on your financial situation and insurance coverage. Here are some key considerations:
i. Loss of Insurance Coverage:
Surrendering your PLI policy means giving up the life insurance coverage it provides. This can leave you and your loved ones encountering financial risks in the event of an unforeseen circumstance.
ii. Cancellation of Benefits:
Along with insurance coverage, surrendering the policy will result in the forfeiture of any benefits associated with it. This includes death benefits, maturity benefits, and other policy-related advantages.
iii. Consideration of Surrender Charges
Depending on the terms and conditions of your PLI policy, surrender charges may be applicable. These charges are deducted from the surrender value, reducing the final amount you receive upon surrender.
iv. Bonus loss:- If the PLI policy is surrendered before the completion of 5 yr no bonus is considered for the calculation of the surrender value of the PLI policy.
Higher bonus rate in PLI– PLI is providing a higher bonus rate than any other insurance co. if you consider your policy for
surrender, there is a loss of earning good bonus rates in the early year of inception.
Alternatives to Surrendering a Postal Life Insurance Policy:-
i. Policy Loans: Instead of surrendering the policy, you may have the option to take a loan against the surrender value of your PLI policy. Taking a loan on your PLI policy allows you to access funds while keeping the policy intact. However, it is important to understand the terms and conditions of the loan and its impact on the policy. The loan will be considered if the policy premium paid is up to date and the minimum premium paid is up to 36 months.
ii. Premium reduction: You may consider a reduction in the premium amount to be paid every month. The new premium amount depends on various factors like your remaining period, premium paid to date, etc.. This can provide relief during times of financial difficulty without surrendering the policy. However, it is crucial to understand the terms and conditions associated with a premium reduction.
iii. Reducing the Sum Assured: If the reason for considering surrender is the high premium amount, you may have the option to reduce the sum assured of your PLI policy. By reducing the coverage amount, the premium payments can become more manageable while still maintaining
some level of insurance protection. It is advisable to carefully assess your insurance needs before opting for this alternative.
iv. Policy Conversion: Depending on the terms and conditions of your PLI policy, you may have the option to convert it into a different type of maturity term of the insurance policy. This conversion allows you to retain the benefits of insurance coverage while adjusting the policy terms to better suit your changing needs. Consult with your nearest Post office to get the conversion or commutation quote to explore this possibility.
Considering these alternatives can help you make a conscious decision that calculates your financial goals and insurance requirements. It is essential to thoroughly understand the implications and potential consequences of each option before proceeding.
Points to be considered Before Surrendering a Postal Life Insurance Policy
Before you consider to surrender your PLI policy, it is vital to evaluate various factors that can impact your decision. Here are some key considerations to keep in mind:
i. Future Financial Goals: Assess your long-term financial goals and how surrendering the PLI policy aligns with them. Consider factors such as retirement planning, education expenses, and other financial commitments that may require insurance coverage.
ii. Investment Options: Evaluate alternative investment opportunities available to you. Determine if there are better investment vehicles that can provide the returns and benefits you seek, considering your risk-taking appetite and investment horizon.
iii. Insurance Requirements: Assess your insurance needs based on your current life situation. Consider factors such as dependent family members, outstanding debts, and any other financial obligations that may require insurance coverage.
Already benefit of bonus in the early period:- The higher bonus rate is the best part of PLI policy, hence in the initial year higher bonus has been accumulated in your policy, so surrendering your policy this benefit may minimize. Surrendering a policy is always a loss to
insurant.
By thoroughly evaluating these aspects, you can arrive at a well-informed conclusion regarding the suitability of surrendering your PLI (Postal Life Insurance) policy. It’s recommended to seek assistance from a financial advisor or an insurance agent, as they can offer guidance according to your unique situation.
Steps to Maximize the Surrender Value of a Postal Life Insurance Policy
If you have decided to proceed with surrendering your PLI policy, there are steps you can take to maximize the surrender value you receive. Here are some strategies to consider:
i. Maintaining the Policy for a Longer Duration: The surrender value of a PLI policy increases over time. By holding the policy for a longer duration, you can potentially receive a higher surrender value compared to surrendering it early. Evaluate the surrender value growth pattern of your policy before making a decision. Normally a policy is to be considered for surrender to recover some benefit if surrendered after its half-period premium is paid. If the policy term is 20 yrs and the policy is surrendered after 10yrs.
ii. Paying Premiums Regularly:
Consistent premium payments contribute to the growth of the surrender value. Ensure that you have paid all outstanding premiums before initiating the surrender process. This helps maximize the surrender value and reduces the impact of surrender charges.
iii. Evaluating Market Conditions: Stay informed about market conditions and interest rates. Surrendering the policy during a period of favorable interest rates can potentially result in higher surrender value.
Consult with a financial expert or PLI agents to understand the after-effect of surrendering of Policy on your financial situation. If you decide to proceed with surrendering, follow the proper process by contacting the nearest post office, submitting the surrender form, and providing the required documents. Understand the impact of surrendering, such as the loss of insurance coverage and cancellation of benefits.
Consider factors like future financial goals, investment options, and insurance requirements before making a final decision. To maximize the surrender value, maintain the policy for a longer duration, pay premiums regularly, and evaluate market conditions. By taking these steps, you can make an conscious decision and optimize the value of your PLI policy.
FAQs
1. What is the surrender value of a postal life insurance policy?
The surrender value of a postal life insurance policy is the amount payable to the policyholder upon surrendering the policy before its specified term. It is calculated based on factors such as the duration for which the policy has been in force, the sum assured, and any accrued bonuses.
2. Can I surrender my PLI policy before the completion of the specified term?
Yes, you can surrender your PLI policy before the completion of the specified term. However, it is important to consider the impact of surrendering, such as the loss of insurance coverage and potential surrender charges.
3. How long does it take to receive the surrender value after submitting the request?
The time taken to receive the surrender value after submitting the request can vary. Normally it takes few weeks for the surrender value to be processed and credited to your bank account. The exact timeline may depend on factors such as the processing efficiency of the post office and any additional verification required.
4. Can I reinstate my surrendered PLI policy?
No, once a PLI policy is surrendered, it cannot be reinstated. Surrendering the policy is a permanent decision that terminates the insurance contract and cancels all associated benefits. If you wish to continue with life insurance coverage, you may need to explore alternative insurance options.
5. Should you surrender your PLI policy after 10 years?
No, However bonus on PLI policy in case surrender after 5 yr is only payable but surrendering a PLI policy after 10yr is always loss to your investment unless there is any unforeseen financial hardship with you.
Conclusion:-
In conclusion, surrendering a Postal Life Insurance (PLI) policy requires careful consideration of various factors. By understanding the surrender process, evaluating alternatives, and assessing your financial goals, you can make an informed decision. Maximize the surrender value by maintaining the policy, paying premiums regularly, and considering market conditions. Remember to consult with financial professionals for personalized advice.