What is Surrender Value? Types, Formula to Calculate Surrender Value using Calculator?


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Updated on Jan 19, 2024

What is Surrender Value?

The term surrender value implies the money that your life insurer is supposed to pay you at the time when you are terminating the policy before it has matured. Usually, in most of these policies, you can surrender the same for cash after you have paid the premiums on the same for three policy years. This means that once the first three years of a policy coverage period are completed it gains a surrender value. In these cases, when you surrender the policy after the first three policy years you would be paid the higher amount from among the special surrender value and the guaranteed surrender value.

However, this is applicable mainly in the case of conventional policies. Please remember that when you surrender a life insurance policy you would get a portion of both the amounts that the insurer has allocated towards earnings and savings for you. The money that is deducted from you in these cases is referred to as a surrender charge, and the amount, in this case, tends to vary from one policy to another. This is however applicable only for the policies that are surrendered in the middle of the coverage period. If you surrender the policy after five years the insurer would not be able to deduct any surrender charge from you.

This is as per a recent directive that has been issued by the IRDAI (Insurance Regulatory Development Authority of India). In that case, you would get the entire fund value of your investment.

Also Read: Understanding The Values Of Term Life Insurance

Different Types of Surrender Value 

What is surrender value? You already know that. Now it is time to know the different types of the same. There are two major options in this case – guaranteed surrender value and special surrender value. The term guaranteed surrender value means the money that your life insurer would pay you for sure when you surrender the policy before it reaches the maturity period. This particular value is usually determined based on the surrender value factor that is mentioned in the policy document.

1. Guaranteed surrender value

The value is calculated by using a tool named surrender value calculator. The surrender value factor is basically a percentage of the total premiums you have paid on the policy to date. This value factor increases with the number of years for which you continue to pay the premiums of the policy. Thus, the factor would get close to 100% when the policy reaches maturity or is on the verge of doing so. This is the reason why the guaranteed surrender value is calculated by multiplying the total premiums you have paid for the policy with the surrender value factor.

2. Special surrender value

An important part of understanding the surrender value meaning is to know about the different types of the same and this brings us to the next type of surrender value – special surrender value. This particular value is normally more than the guaranteed surrender value. The special value depends on the sum assured that has been guaranteed under the policy as well as other factors such as the premiums you have paid for the policy, bonuses, and the term period of the policy. Following is the formula for calculating this particular value:

Also Read: Best Term Insurance Plan in India 2022

Surrender Value Formula

Bonuses accrued on the policy + paid-up value X surrender value factor

Basic sum assured X (number of premiums/number of premiums that you are yet to pay on the policy)

In this case, the following formula is used to calculate the paid-up value:

Also Read: How To Surrender LIC Policy Online

Surrender Value Calculator

As we have indicated already, this is an online tool that is used to calculate the surrender value of a policy. It may be assumed that you may have understood by now that this is an effective tool. You can easily access the same at the websites of all companies that are selling life insurance policies. All you need to do is provide some basic information and you would be able to calculate said value in an instant.

If you want to use this tool to know what is surrender value on your policy you would have to furnish details such as the following:

  • plan name
  • policy term
  • the number of premiums you have paid on the policy
  • the mode you have followed for paying the premiums
  • the installment amount of each premium
  • the number of years for which you have continued the policy

After you have submitted all these details the tool would calculate the surrender value of your life insurance plan in an instant.

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There are a few things that you must remember in these cases. You may have liked the money you would make by surrendering the policy by using the surrender value calculator. The main dilemma that you have here is to decide between surrendering such a policy and not doing so. However, once you give the policy up you would also not get the risk coverage and other benefits that are provided by your life insurance plan. When insurers calculate the surrender value they look at the number of premiums you have paid, and in certain cases they also consider the bonuses that have accrued on the policy. However, this would only be done to the extent that is allowed by the surrender value factor.

This means that you would not get back all the money that you have paid the insurer to date. It is okay to know the surrender value meaning but you need to ask yourself if you should be acting on the same or not. By surrendering your life insurance policy you would also be forsaking the income tax benefits that you get because of the same. There are plenty of other factors that need to be taken into consideration in this context. That is why you need to think very carefully if such a decision makes financial sense or not. You should remember that not all policies are eligible to gain a surrender value. It is also important to know what is surrender value that you would get from the policy so that you can use it effectively.

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Feb 13, 2022
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PayBima Team
PayBima is an Indian insurance aggregator on a mission to make insurance simple for people. PayBima is the Digital arm of the already established and trusted Mahindra Insurance Brokers Ltd., a reputed name in the insurance broking industry with 17 years of experience. PayBima promises you the easy-to-access online platform to buy insurance policies, and also extend their unrelented assistance with all your policy related queries and services.

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