If you are planning to surrender your insurance policy before maturity, you need to consider the pros and cons of doing so before taking such a step. Here are a few things you need to consider before surrendering your insurance policy:
First and foremost, read the policy document to find out the surrender charges. These charges are deducted by the insurance company from the surrender value of the policy. The surrender charges would be high if you surrender your policy before three/five years from the date of purchase and would reduce progressively or even become nil after the stipulated number of years. Also, if just a few years are remaining for the policy to mature, it is advisable to stay put with the policy till maturity to avoid deduction of surrender charges. So, it is in your own interest to know the amount you would stand to lose if you surrender your policy.
The performance of the policy should be another factor to consider before deciding on whether or not to surrender the policy. If it is a ULIP policy, the performance factor is especially crucial. It would surely not be advisable to surrender a policy which has invested in funds that have been performing well consistently over the years, as the returns on your investments would be higher than other mutual funds if you stay put with the policy. However, if the performance is below par, surrendering the policy and investing the proceeds in better performing mutual funds would be a good idea. In the case of traditional policies that are not market-linked, the accrued bonuses on your policy would give a good idea of the performance of your policy.
Lastly, if you are surrendering your old policy because of its underperformance and are planning to get a new insurance policy that you expect to perform well, you need to be sure that insurance companies would be willing to insure you, especially if you have health issues or if you are above the age of 50. If you are not sure about your re-insurability, it is better to continue with the existing policy as you will remain insured till the policy matures.