Should I surrender my LIC endowment policy or continue it?
Updated 7 min read By Cashflow and Wellness Advisors
Short answer
Do not decide on the headline return alone. First make sure you have enough term cover, because surrendering removes life cover. Then get the surrender value and the paid-up value in writing and work out the return on continuing from today, not from the start. Often making the policy paid-up beats surrendering, and in the last few years continuing may be reasonable.
Many families bought an endowment policy years ago, often from a relative or a trusted agent, with the idea that it would "save and protect" at the same time. Every year the premium goes out. Then someone shows you a calculation saying the return is poor, and you wonder: should you stop now, or have you come too far to quit?
Both feelings are reasonable. The good news is that this is a decision you can make with a few numbers on one page, rather than on someone's opinion. And the order in which you look at those numbers matters.
Step 1: Check your life cover before anything else
An endowment policy gives two things: a maturity amount and life cover. If you surrender it, the life cover ends the same day.
So the first question is not about return at all: if something happened to you tomorrow, would your family have enough? Check your policy's sum assured against what a family with a home loan and school-going children would actually need; for many traditional policies, it is far smaller.
If you do not already have adequate term insurance, arrange it first, and only consider surrendering once the new cover is in force. A term plan is pure life cover with no maturity value, which is why its premium is much lower for the same sum assured. Our guide to how much term and health insurance you actually need helps you size it. From 22 September 2025, GST on individual life and health insurance premiums is nil.
Step 2: Understand the return you are actually earning
Traditional endowment policies combine insurance and saving, and the saving part tends to grow slowly. The way to see this is to compare everything you pay with what you get at maturity.
Illustration: A policy has an annual premium of ₹50,000 for 20 years, so ₹10 lakh is paid in total. Suppose the maturity amount, including bonuses, works out to ₹15 lakh. Measured properly, with each premium counted from the year it was paid, that is a return of roughly 3.7 percent a year. If the maturity were ₹14 lakh it would be about 3.1 percent; at ₹16 lakh, about 4.3 percent. (Illustrative numbers; bonuses are not fixed in advance, so your policy's figures will differ.)
Now compare the alternative of buying term cover and investing the difference. Suppose ₹12,000 of the ₹50,000 buys adequate term cover (an assumption; actual premiums depend on age, health and cover), and ₹38,000 a year is invested for 20 years.
| Assumed return on the ₹38,000 a year (not a forecast) | Approximate value after 20 years |
|---|---|
| 7% (close to current safe, long-term government scheme rates) | ₹16.7 lakh |
| 10% (an equity-type assumption, with ups and downs) | ₹23.9 lakh |
In this illustration, the term-plus-invest route also provided far more life cover throughout. But this comparison is about choosing a structure, ideally when you start. For a policy you already hold, what matters is the next step.
Step 3: Work out the return on continuing from today
This is where many people go wrong. The money already paid is gone in either case. The real question is: from today, does continuing beat stopping?
To work that out, ask the insurer for two figures in writing:
- Surrender value today: what you get if you close the policy now.
- Paid-up value: the reduced sum assured you would get at maturity if you stop paying premiums but keep the policy alive. Typically it is the sum assured scaled down by the share of premiums you have paid, plus bonuses already attached.
Illustration: Continue the same policy. You have paid 8 of the 20 premiums (₹4 lakh). The insurer quotes a surrender value of ₹2.6 lakh today. If you continue, you pay ₹50,000 a year for 12 more years and expect ₹15 lakh at maturity. Treating the ₹2.6 lakh you would give up as your "investment" today, plus the remaining premiums, the return on continuing from here works out to about 6.7 percent a year. That is much better than the 3.7 percent headline, because the early costs are already behind you. If the same money could be put to work at an assumed 7 percent, it would reach about ₹15.4 lakh; at an assumed 10 percent, about ₹19.9 lakh. (Illustrative numbers and assumed returns, not forecasts.)
The closer a policy is to maturity, the more likely continuing is reasonable. The newer the policy, the more the early costs weigh, and the more the comparison can favour stopping, once term cover is in place.
Surrender, make it paid-up or continue: how do they compare?
| Option | What happens | Life cover | Money now | Often suits |
|---|---|---|---|---|
| Continue | Keep paying till maturity | Full sum assured | None | Policies in their last several years, or where continuing beats your alternatives |
| Make it paid-up | Stop premiums; policy stays alive with a reduced sum assured | Reduced | None | When the premium strains the month, but surrender value is poor |
| Surrender | Close the policy; take the surrender value | Ends | Surrender value | Newer policies, once adequate term cover is in place, with a clear use for the money |
The paid-up option is often overlooked. It stops the premium outflow immediately, keeps some cover, and avoids taking the heaviest early-years loss.
Where does this fit in your overall money order?
An endowment premium is a fixed yearly commitment, so it belongs in the same sequence as everything else. If you are carrying a high-interest personal loan or a credit card balance while paying a large premium, the order matters: the policy's slow return sits next to a loan that costs far more.
Sometimes the right move is to make the policy paid-up and use the freed premium to clear that debt. Sometimes it is to continue, because the policy is close to maturity. If you do surrender, the money needs a job straight away, not a spell in a savings account. Our post on having ₹50 lakh in FDs shows how to give lump sums a clear purpose, and the arithmetic of a long-term target shows how much assumptions about return matter.
What should you avoid?
- Surrendering before new term cover is active. Even a gap of a few weeks is a risk your family carries.
- Deciding on the headline return alone. Use the return from today.
- Replacing one policy with another "better" bundled plan suggested by the person helping you surrender. Ask what they earn on the new one.
- Ignoring tax. Check how your maturity or surrender amount will be taxed before deciding.
Putting your policies, loans and goals on one page and working out the order is exactly what we map in a first conversation. Advice on specific investment products for the money comes through a SEBI-registered adviser.
Questions people also ask
What is the difference between surrender value and paid-up value?
Surrender value is the amount the insurer pays you now if you close the policy, after which there is no cover and no maturity amount. Paid-up value is what you get if you stop paying premiums but keep the policy: a reduced sum assured paid at maturity or on death, usually with the bonuses already added. The insurer can tell you both figures for your policy.
Will I lose money if I surrender an endowment policy early?
In the early years, the surrender value is usually well below the premiums paid, because the costs of the policy are taken out up front. The loss shrinks as the policy gets older. Check the actual figure with the insurer before deciding, rather than relying on a rule of thumb.
Is the maturity amount from an endowment policy tax-free?
It depends on the policy's start date, the premium size and the cover relative to the premium, and the rules have changed over the years. Ask the insurer for the tax treatment of your policy, or check with a tax professional, before counting on a tax-free maturity.
Can I take a loan against my endowment policy instead of surrendering it?
Many traditional policies allow a loan once they have acquired a surrender value. It keeps the policy alive, but interest is charged and any unpaid loan is deducted from the claim or maturity amount. It suits a short-term need better than a permanent exit.
Is GST charged on life insurance premiums now?
From 22 September 2025, GST on individual life insurance premiums, including term and endowment plans, is nil. Earlier it was 18 percent. Actual premium changes vary by insurer, so compare current quotes rather than assuming an exact saving.
Start here
Bring your numbers. We will map what can move.
Salary, EMIs, FDs, SIPs and the commitments that repeat every month. One conversation is usually enough to see the sequence.
This article is general education, not personal investment, tax or legal advice. Figures are illustrative, not guaranteed outcomes, and rates and rules change — check current numbers before acting. Regulated investment advice is handled through the SEBI-registered adviser.