Ans: 1. It may be noted that a pension plan is taxable. Only life insurance policies with the stipulated life cover would be exempt from income tax. The surrender value is added to the income of the policyholder and offered to tax if he has availed of the tax benefits while paying premium. If he has not availed tax benefits, then the excess of surrender value over the premium paid will be added to income and taxed at marginal rate of tax.
2. If you extended till maturity and opt for annuity, the income will be added to the income of the policy holder and taxed accordingly. You however would be able take the commutation benefit as tax free. IRDA has set a cap of commutation of up to 60% of the corpus in 2019.