Life insurance policies are usually purchased for the long-term as it is purchased to protect and safeguard the financial future of a person and his loved ones. However, there are times when a person thinks about giving up or surrendering a life insurance policy.
Surrendering a life insurance policy implies ending the association with your insurance provider. While many reasons why a policyholder can surrender his/her policy, such as the policy not providing adequate coverage, the policyholder cannot pay the premium sum. Surrendering a policy that is close to its maturity period causes you to lose a lot of advantages.
A surrender value is usually the sum owed by the life insurance provider when you decide to surrender or give up on your life insurance policy. Whenever you surrender your life insurance policy, you receive a certain amount of premiums that you regularly paid back from the insurance provider. This receipt of payment is known as a surrender value.
All those policyholders looking for ways to calculate the surrender value of life insurance must note that calculating the surrender value in the present technologically advanced times is extremely easy.
You can now calculate the exact surrender value in minutes with the help of an effective cloud-based tool that is known as a surrender value calculator. You can instantly access this cloud-based surrender value calculator online to check the surrender value.
To obtain this information, all you require to do is present some basic details like the policy term, amount of the premium paid, premium payment mode, number of years the policy has completed, premium installment amount, etc., exact value.
Once you present all these details, the online surrender value calculator immediately determines your life insurance policy's surrender value.
A life insurance policy acquires a surrender value in the following two scenarios:
When the policy duration is ten years or more
In this situation, the surrender value of the life insurance policy is obtained if the premium amount is regularly paid at least for three consecutive years.
When the policy duration is less than ten years
In this situation, the life insurance policy gets a surrender value if the policy's premium amount is regularly paid at least for two consecutive years.
If the surrender value exceeds the whole amount of insurance premiums you have paid, the profit will be taxed as lump-sum income.
Source: Y20India
To have a better understanding of what is surrender value, let us take a look at its types. There are generally two kinds of surrender value in a life insurance policy: guaranteed surrender value and a special surrender value.
Under this guaranteed surrender value of life insurance, the amount or a fixed sum guaranteed is to be owed by the insurance provider on surrendering or giving up on the life insurance policy before the completion of the maturity period.
The guaranteed surrender value of a life insurance policy is decided based on the surrender value determinant stipulated in the policy papers. This surrender value determinant is usually the percentage of the cumulative premium amount paid. The surrender value of a life insurance policy, in this case, rises with the number of years of the policy.
The surrender value factor will grow close to 100 percent of the total premiums paid when the life insurance policy progresses nears maturity. Therefore, in this case, the guaranteed surrender value is computed as cumulative premiums paid that get multiplied by the surrender value factor.
This special surrender value of a life insurance policy is customarily higher than the guaranteed surrender value. However, this entirely depends on the insurance provider. Specific surrender value relies on the amount ensured, premiums paid by the policyholder, policy course, and bonuses.
Usually, this special surrender value is determined with the formula - (Accrued bonuses + Paid-up value) multiplied by the surrender value factor. The paid-up value is calculated as the Basic sum assured multiplied by the number of premiums payable or the number of premiums paid.
Suppose you plan to surrender your existing life insurance policy due to inadequate coverage and look for a comprehensive plan to get a better financial cushion. In that case, you can buy a life insurance policy by Canara HSBC Bank of Commerce.
To state the obvious, giving up or surrendering your life insurance policy is not at all a rational decision, especially when it's close to maturity, as you never receive the entire sum that you paid as premiums. However, if you think your policy is not yielding decent returns, you can consider making such a decision, or you can buy a new life insurance policy to suit your
Life insurance policies are designed with various features to provide financial security and peace of mind. These features include death benefits, premium payments, maturity benefits, and optional riders that enhance the policy's coverage. Each term plays a critical role in shaping the policy to meet the policyholder's specific needs and financial goals. Among these features, the surrender value holds a significant place.
The surrender value is the amount the policyholder receives if they decide to terminate the policy before its maturity. This value is determined by the premiums paid, the policy’s duration, and terms and conditions. While opting for the surrender value can provide immediate liquidity, it often results in a reduced benefit compared to holding the policy to its full term. Understanding the implications of surrendering a policy helps policyholders make informed decisions that align with their financial objectives. Thus, the surrender value is a crucial aspect of life insurance, bridging the gap between maintaining long-term financial plans and addressing short-term financial needs.
Cumulative Premiums : The total premiums paid on a policy from the Issue Date through the Eligibility Date are referred to as the Cumulative Premium.
Surrender Value Factor : It is a percentage of the paid-up value plus the bonus. This component is zero for the first three years and starts to increase in the third year.
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The fifth-year surrender value factor is thirty percent.
There are 2 surrender value formula in life insurance:
Guaranteed Surrender Value = 30% X Total premiums paid.
Special Surrender Value = Initial base sum assured times (Premiums paid minus Premiums payable+ Bonus) + surrender value factor)
In term insurance, surrender value is the sum of money that the policyholder receives from the insurance company in the event that they choose to cancel their policy before it matures. It is exclusive to term insurance plans that offer a surrender incentive.
Guaranteed Surrender Value: This sum, which is typically stated in the brochure, must be paid once three years have passed.
Special Surrender Value: The total assured, total premiums paid, the length of the policy, and any relevant bonuses all affect the special surrender value.
Your policy's cash surrender value will typically be given to you in one single payment. However, you can gradually receive recurring payments based on your policy.
