Surrender Vs Sale of Life Insurance Policy

Mr. S. K Sethi, Director, RIA Insurance Brokers

1.    How can I sell my life insurance policy to third party/company?

Ans. Life Insurance policy is a contract between Insurer & Insured, where name of the nominee and his/ her blood relation with the insured is a must and important information.

There are instances, where an insurance policy is issued in favor of borrower where premium is paid out of loan amount being disbursed by lender. In such cases the name of the lender is mentioned as a nominee/ beneficiary.

It is very clear that selling of life insurance policy (which has been in operation for some time or few years) is not desirable as nominee (Spouse/blood relation) will not come to know that her name has been removed from the policy.

For endowment and ULIP policies in case an insured is in need of funds then he can borrow good % of the premium paid from the insurer or any bank and in that case, insurer or the bank can have the right over policy and in the event of death of insured the claims payment will be made. In this case the bank will deduct Loan+ Interest and will pay the balance amount to the nominee, mentioned in the policy.

2.    Is selling a policy a better option than surrendering it? What are its advantages and disadvantages?

Ans: Theoretically selling is a better option than surrender value as you will get higher amount.

Assuming the insurer is ready to change the name of nominee to buyer. (who is not a blood relation) - one may face dealing with unfair, cheat, crooked, greedy person who may get the insured murdered, killed, kidnapped with a view to get large amount of sum assured.

Advantage: May be insured is getting few thousand rupees more than surrender value calculated by the insured .

Disadvantage: Can be that he can get murdered/ killed by the buyer (lender).

We personally feel that you should avoid selling of your life insurance policy.

3.    Which agencies/companies in India are authorized to buy Insurance policies? How do they earn from these policies?

Ans: According to our information lender at the timing of granting/ approving disbursing loan is allowed to get policy issued where lender is the nominee/ beneficiary.

Buying of the life insurance policy is in operation and it being done by various companies.

You can locate the names of such companies.

4.    Process: If I want to sell my policy, how can I do it? 

Ans: Normal process for change in name of nominee will be applicable and your insurer will guide you with forms to be filled up.

5.    What is the role of the insurance company in this entire process?

Ans: In the case of overdraft being granted by the bank-policy will be endorsed by the insurer as hypothecated to the bank and returned to the bank.

In this case the original insurance policy bond will be in possession of the bank.

In case of change in name from nominee to the buyer of the insurance policy- Insurer will guide you will forms to be filled up.

6.    After the insurance matures, will the insurance company send the money to the policyholder's account or the third party's account?

Ans: After the maturity of the policy insurer will send money to the bank as per hypothecation details.

As nominee does not have original insurance policy bond with him/ her so he /she can not lodge claim with insurer. Attaching of the original policy bond/ document is a precondition for submission of claim documents to the Insurer.

7. If the policyholder dies before maturity, what will be the process?

Ans: The nominee/beneficiary has to submit the following documents:

·      Original Policy Bond

·      Death Certificate

·      Bank Account Details/ KYC of nominee

·      KYC Documents of deceased.

In case it was hypothecated with the bank then they will submit these documents. Assuming the amount being paid is higher than loan+ Interest amount then the balance amount will be paid to nominee.

8.    LIC has declared such practices unauthorized. What does this mean?

Ans:  Life Insurance Corporation of India (LIC) the leading life insurer, of our  country treated such sale of policy as unauthorized .and many years back took up the case to Bombay High Court where the judgment went in favor of Insure Policy Plus Services (India) Pvt Ltd.

LIC went to the Supreme Court of India and the appeal was rejected. So as on today the sale of insurance policy is allowed.

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