Now you can surrender your LIC policy without losing insurance cover. Here’s how

ACESO has rolled out the Assignment of Life Insurance Policies (ALIP) program, designed especially for Life Insurance Corporation of India (LIC) policyholders thinking about surrendering their policies or dealing with lapses. With ALIP, you can get the surrender value of your endowment insurance policy and still keep your life cover benefits.

ALIP provides policyholders with the exact surrender value as determined by LIC of India. Additionally, ALIP outlines year-by-year life coverage benefits from the assignment date to the maturity date for nominees, ensuring continued insurance cover if the policyholder passes away without requiring further premium payments. Founded in 2018, ACESO specializes in endowment policies issued by LIC of India and has facilitated over Rs 400 million worth of assignments. This service is managed by an independent Special Purpose Vehicle (SPV) Trust overseen by a SEBI-registered trusteeship company.

In the event of the policyholder’s death, the nominee can claim the death benefit from the Trust under the terms and conditions of the contract signed with ACESO. Since ownership of the policy has been transferred, LIC pays the benefit to the Trust instead of the nominee. The Trust deducts 9% and the investment amount (premiums paid) from the death benefit before paying the remaining amount to the nominee.

Ketan Mehta, founder of ACESO, highlighted that LIC’s endowment policies constitute a significant portion of its yearly issuances, but many policies (about 50%) don’t reach maturity due to surrenders or lapses. ALIP addresses this by offering an alternative to surrendering policies prematurely, allowing policyholders to access their policy’s value while safeguarding their future life coverage. He added that ALIP has a quick payment process, typically completing within 48 hours after all necessary documents are finalized. The entire documentation and KYC process are handled online, minimizing inconvenience for policyholders and their LIC agents.

The Mumbai-based CA waged a multi-decade battle against LIC to enable the assignment of life insurance policies for policyholders who would otherwise surrender them before maturity. After winning a Supreme Court case in 2015, Mehta set up a trust to facilitate this. In FY24, insurance policies worth Rs 1.33 lakh crore were surrendered compared with Rs 1.11 lakh crore in FY23.

However, LIC recently issued a notice relating to product/service offerings by certain entities offering to acquire (by way of sale/transfer, assignment, or otherwise) policies held by existing policyholders of LIC as an alternative to the surrender of policies to LIC. The circular stated: “LIC is not associated with any such entity, or the products and/or services being offered by such entities, and any statements made by former employees/personnel of LIC are personal to such individuals. We disclaim any responsibility or liability in connection therewith…Any sale/transfer or assignment of LIC policies needs to be undertaken in accordance with the Insurance Act, 1938, including Section 38 thereof. Under applicable laws, LIC may decline to act upon any sale/transfer or assignment of policies, where LIC has sufficient reason to believe that such sale/transfer or assignment is not bona fide OR is not in the interest of the policyholder OR in public interest OR is for the purpose of trading of insurance policy.”

On the question of the LIC circular, Mehta said the question needs to be asked to the insurer. “Insurance policy is considered a property as per the Supreme Court judgment and we are abiding by the rules…ALIP reduces surrender payouts and boosts the insurer’s assets under management, potentially leading to higher bonus rates and earnings. This approach fosters a sustainable and efficient insurance ecosystem,” said Mehta.

How does ACESO make money through assigned policies? “ACESO pools assigned policies, creating pass-through certificates (PTCs), which are issued at a discount to third parties, mostly family offices or high-net-worth individuals (HNIs). The company combines policies and issues PTCs, offering a return of around 7% per annum.” What about the taxability of return from PTC? “Since life insurance maturity is tax-free, no income tax is paid by PTC holders.”

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