If you surrender the policy, you will make huge losses. The guaranteed surrender value will be 30 per cent of the total amount of premiums paid minus the first-year premium. LIC might pay a special surrender value - which may be higher than the guaranteed surrender value.Since your have completed three years, you can surrender the policy. You do not have to pay any tax on the surrender value, as the surrender receipts are tax-free if sum assured is more than 5 times the annual premium on all policies bought before 31/3/12.

It is always better to buy a pure term insurance plan wiht an adequate life insurance cover. Term plans have lower premium and you can buy a large cover with them by paying a very small premium. You should also opt for equity mutual fund schemes for your long-term investment needs.