The Life Insurance Corporation has for the first time offered its policyholders an option to surrender six of its annuity plans and receive the purchase value in return.

The insurer is trying to cut down on its high-cost liabilities.

This option will be available for Jeevan Akshay, Jeevan Dhara, Immediate Annuity with return of purchase price, Deferred Annuity with return of cash option, New Jeevan Akshay and New Jeevan Dhara.

A circular issued by LIC's central office in June said: "Surrender value payable under all these plans, including Jeevan Akshay, will be equal to 100 per cent of the purchase price or cash option."

The surrender option will be available only where the policyholder has chosen "annuity with return of purchase price or cash option on death."

Most policyholders opt for an annuity plus death cover where the purchase price is paid by LIC on the death of the insured person.

The option to surrender the schemes will also be available in cases where annuity payments have started.

In the case of Jeevan Akshay, where 30 per cent of the purchase price has been paid back by LIC to the policyholder at the end of seven years, only the balance 70 per cent will be returned.

The circular said the surrender option would be allowed only upon request by the policyholder.

Last July, the state-owned insurance major had allowed surrender of Jeevan Akshay policies. This offer was, however, open under exceptional circumstances like medical treatment, repayment of loans among others.

Despite attempts, LIC Chairman S B Mathur could not be contacted. Company sources, however, said the move was aimed at reducing high-cost liabilities.

For instance, Jeevan Dhara offered 12.75 per cent returns in addition to tax rebate on investment. At present, LIC's annuity plans offer 6.5 per cent returns on average.

However, the circular does not spell out whether the policyholders will be entitled to interest that will have accrued on the premium paid to the company.

In the past 2-3 years, banks and insurance companies have been affected because of the continuous softening of interest rates.

The weighted average cost of government borrowings has dropped from over 12 per cent four years ago to around 9 per cent now.

LIC has also pared returns on its policies and loans extended by it.

LIC's move follows UTI-I, which recently decided to foreclose about six assured return schemes in addition to resetting of interest rates on some others. Banks and institutions are also prepaying their high-cost borrowings by exercising call options.

Schemes for surrender

• Jeevan Akshay
• Jeevan Dhara
• New Jeevan Akshay
• New Jeevan Dhara
• Immediate Annuity with return of purchase price
• Deferred Annuity with return of cash option