Surrender Value

A policyholder can terminate the life insurance before it reaches maturity by surrendering the policy to the insurance company. Once this is done, the insurer pays a cash value known as the policy's surrender value.

All types of life insurance policies do not acquire a surrender value. Life insurance policies associated with an investment component such as ULIPs/ annuity/ endowment plans acquire a surrender value over time. Sometimes policyholders may feel that the purchased plan does not fit their requirements or they are not able to get benefitted from the features that were promised at the time of purchase. In such cases, they tend to cancel the policy. Once the lock-in period of the policy is over, the policyholder can surrender without paying any charges.

A mid-term surrender would fetch the policyholder a sum that has been allocated towards savings. When the policyholder surrenders, a surrender charge is deducted from the surrender cash value. But in recent times, IRDA has regulated that the insurance companies will not impose any surrender charge if the policyholder surrenders the policy after 5 years.

A policy gains a cash value only if the policyholder pays the premium regularly for 3 years. Once you surrender the insurance policy you own, all the benefits under the policy are discontinued. There are two types of surrender value in a life insurance policy:

• Guaranteed³ Surrender Value: A fixed sum assured is given by the insurance company when the policyholder surrenders the policy.


• Special Surrender Value: Special surrender value is higher than the guaranteed¹ surrender value. The specific surrender value depends on the sum assured.

Prachi purchased an endowment life insurance policy for a policy term of 20 years and a sum assured of Rs.9 lakhs. She paid the premium of Rs.11,121/- for 10 years and then wanted to surrender the policy. Prachi placed a request to the insurance company for surrender. The insurance policy gained a cash value as Prachi had paid the premium for 10 years. After the surrender, the insurance company paid a cash value of Rs.2.15 lakhs.