What Is Surrender Value (Cash Surrender Value) in Insurance and how is it calculated?

Buy a Life Insurance Plan in a few clicks

Now you can buy life insurance plan online.

Kotak e-Term Plan

Protect Your family’s financial future with Kotak e-Term Plan. Know more

Kotak Assured Savings Plan

A plan that offer guaranteed returns and financial protection for your family. Know more

Kotak Guaranteed Savings Plan

A plan that offers long term savings and insurance in one premium. Know more

Kotak e-Invest

Insurance and investment in one plan with Kotak e-Invest. Know more

Kotak Health Shield

Insurance against medical expenses related to heart, brain, liver and Cancer. Know more

What Is Surrender Value (Cash Surrender Value) in Insurance and how is it calculated?

What Is Surrender Value (Cash Surrender Value) in Insurance and how is it calculated?
  • 10th Oct 2019 |
  • 36,406

Do you ever wonder about the cash value of your life insurance policy?

Because if you want to cash out on your policy, you need to determine its surrender value.

If you are hearing the term surrender value for the first time, keep reading because we will cover everything from what do you mean by surrender value, what are its types, how to calculate surrender value of term life insurance, to what is paid up value, how to close policy before maturity, how you can cash out your policy, and more.

What do you mean by surrender value?

The cash surrender value is defined as the accumulated component of an insurance policy that is paid if you cancel your policy. You need to remember that the surrender value is available on traditional insurance plans such as whole life or endowment plans. Surrender value is not applicable if you purchase a term plan. In simple terms, surrender value is the amount that the insurer pays to the policyholder when the latter decides to terminate the policy before maturity.

What are the types of surrender value?

There are two kinds of surrender values:

  • Guaranteed surrender value
  • This is specifically mentioned in the insurance contract and is payable after the completion of three years. Generally, the amount accounts for 30% of the total premiums paid, excluding the premium amount you pay in the first year. This amount is also exclusive of any riders or bonuses provided by the insurance company.

  • Special surrender value
  • This type of surrender value depends on the premiums paid, the policy period, bonuses and sum assured. Special surrender value can be calculated using a simple formula which is:
    (Paid-up value + accrued bonuses) X surrender value factor An obvious question that arises here is, what is paid up value? It is nothing but the basic sum assured X (number of premiums paid/number of premiums payable).

Special considerations

In the case of whole life insurance policies, the insurer guarantees the cash value which is payable only at the time of policy surrender. However, you can withdraw a part of the cash value or take a loan against it for current use. These loans are available at low-interest rates and are usually tax-free unless the policy is surrendered.

On surrendering the policy, the outstanding loan sum is taxable in the ratio of cash value earnings. Also, you must repay the loan in time, or the death benefit will be reduced by the outstanding loan amount. In the case of universal life insurance plans, there is no cash value guarantee, but you can partially surrender it after the first year. These policies specify a surrender policy period during which you can surrender your policy but with a charge of 10%. Post the surrender period, there is no surrender charge. You also pay taxes on the part of the surrendered cash value that signifies cash value earnings.

How can you cash out on your life insurance policy?

When you surrender your life insurance plan, you are cancelling the coverage and availing the accumulated cash value. When you cash out on the insurance policy, the insurance company levies certain charges, and these charges are reduced from the accumulated cash value on your policy. Before deciding to surrender your insurance, you need to remember that the result will be loss of life coverage. Therefore, if you require money, you should consider borrowing against your life insurance policy instead of cashing out the policy itself.

What are the documents required for surrendering a life insurance policy?

Though surrendering a life insurance policy is not a cumbersome task, it entails important documentation and paperwork. Following are the list of documents required while surrendering your policy:

  • A duly filled and signed surrender request form with policy details, name and contact details.
  • Original policy documents.
  • Bank account details.
  • A cancelled cheque of the account where the amount is to be deposited.
  • Self-attested KYC documents.

What is the difference between cashing out and borrowing against your life insurance policy?

When contemplating the surrender value in insurance, you may refer to one of the two following ideas:

1. The investment value you will receive when you surrender your policy in lieu of the life coverage offered under the plan.

When you choose this option, your nominees do not receive any policy benefits in case of an unfortunate event as you decide to cash out the accumulated value before its maturity.

2. The amount you may be able to borrow against your insurance coverage while it’s active.

Under this option, you can avail cash on your policy without foregoing the insurance coverage. Generally, the interest rate on such borrowed amounts is low and affordable.

What do you lose on surrendering the life insurance policy?

When you surrender your life insurance policy before maturity, you forgo the following benefits:

  • Loss of risk cover.
  • Partial loss of investment because surrender value only considers premiums paid and bonuses.
  • No tax exemption on policy premiums.

How does ’cash value’ work in a life insurance policy?

To understand what is the cash surrender value of term life insurance, you need to comprehend how it works. You pay a premium to procure insurance coverage, and a portion of this premium is used towards providing life coverage and administrative fees. The balance is invested by the insurer on your behalf. This balance amount that is invested in different investment schemes earns a considerable amount of returns, which are then provided as accumulated benefits.

How to calculate the surrender value of policy?

The cash value in a life policy accumulates over the years. Therefore, when you pay the premiums regularly for a longer period, the cash value of the policy increases. This is because the investible component of the premium has a longer time to grow.

To know what is the cash surrender value of term life insurance, it is recommended you ask your financial advisor or directly procure the calculation from the insurer. You also need to know what a surrender period means. It is nothing but the period that you need to wait before the policy has a cash surrender value.

What is the surrender fees?

Another aspect of surrendering your life insurance plan is the surrender fees charged by the insurer when you cancel the policy or withdraw funds prematurely. The value of surrender fees is higher during the initial years, and it keeps reducing as time passes.

You may choose to surrender your policy as you may not need it or want to purchase a new one. It is an important decision, and you need to consider all factors before making your choice. Since the surrender fees can be a significant value for you, it is recommended that you ask the insurer if you can withdraw the cash surrender value and use some portion of it to buy a less expensive policy before you decide to surrender your current life insurance policy.

What is Surrender Value (Cash Surrender Value) in insurance and how it is calculated


1. What is the meaning of the free-look period in insurance policies?

The free-look period is a time gap given to policyholders to cancel their insurance contract without paying any penalty for it. However, the policyholders must specify strong reasons for doing so. Depending on the insurer, a free look period might run up to 10 days. The policyholder can decide whether or not to keep the insurance policy throughout the free look term; if they are not satisfied and desire to cancel within the free-look period, they will receive a full refund. This duration, however, may differ from one insurer to the next.

2. What is paid up value in insurance?

When you stop paying premiums for your life insurance policy after a specific period, the policy continues but with a lower sum assured than before. This condensed sum assured is referred to as the paid-up value. The surrender value increases as the number of premiums paid increases. The surrender value component is a proportion of the whole amount paid up plus the bonus.

3. What is the fund value in unit-linked investment plans (ULIPs)?

The fund value is the total monetary worth of your units in the ULIP plan. This can be calculated by multiplying the net asset value (NAV) of each unit on a specific day by the total number of units held.

4. Does term insurance have a surrender value?

Term plans are pure protection plans with zero surrender value. So, if you surrender your policy, you choose not to get any money back.

5. Can you avoid paying surrender fees?

Yes. You can avoid the surrender fee payment by holding your life insurance contract until the surrender period. This is so because post that period, your insurance provider does not charge any fees post that period even if you discontinue the policy. The surrender period is listed in the prospectus or the insurance contract, which you must go through while buying your policy.

Kotak e-Term Plan

Download Brochure


  • Nominal Cost
  • Multiple Plan Options
  • Flexible Payout Options
  • Critical Illness Rider
  • Tax Savings
  • Long term Coverage

Ref. No. KLI/22-23/E-BB/492


Browse our library of resources

- A Consumer Education Initiative series by Kotak Life

Similar Articles

Key Things to Review in Your Life Insurance Policy Document

Term Insurance Vs Car Insurance: A Budgetary Choice You'll Regret

Role of IRDAI in the Insurance Sector

All about Life Insurance Calculators

What are robo-advisors in insurance?

Always keep your Nominee informed

Important Terminologies of Life Insurance

What Is the Procedure to choose a nomination in life insurance policy?

What Is Insurance Rider and It’s Benefits?

FAQs on Life Insurance

Guidelines for Linking Aadhar and PAN to Insurance Policies

Important Features of a Term Insurance Plan

Different Types of Insurance Policies in India

Why One Must Buy Term Insurance before 25 Years

Can An Individual Buy Multiple Term Insurance Plans?

How Do Term Insurance Plans Differ for Smokers?

Should you buy a Renewable Term Life Policy?

What Happens If I Stop Paying My Life Insurance Premium?

Benefits of Term Insurance with Critical Illness Rider

How to Calculate Human Life Value(HLV)?

Difference Between ULIP and Endowment Plan?

What is a savings plan?

Reasons Why Term Insurance Claims Get Rejected

Digital Life Certificate for Pensioners Seeking Pension

How Much Life Insurance Costs and How Much Insurance Cover You Need?

How Often You Must Review Your Life Insurance Policy?

In India, should NRIs purchase life insurance?

What Is a Whole Life Insurance Plan?

भारत में जीवन बीमा पॉलिसियों के प्रकार

Term Insurance Vs Life insurance: Small Details, Big Differences

Why do I Need Life Insurance?

Top 5 Common Life Insurance Myths and Facts

Why Buying a Term Insurance is Important for all Parents

Terms and Conditions of Term Insurance Plans

All About Backdating in Life Insurance

Choosing Between Short-Term & Long-Term Insurance Plans

How to Customize Your Life Insurance Policy with Riders

How to Make Death Claims on Life Insurance?

Why Life Insurance Is Always a Smart Decision

Life Insurance and Retirement Planning

Are Deaths Due To Coronavirus Covered by Kotak E-Term Plan?

Biggest Life Insurance Myths

First Job? Here’s Some Tips on How to Manage Finances

Does Life Insurance Pay for Suicidal Death?

What is Underinsurance & The Dangers of Being Underinsured

What Is Investment Insurance?

5 Smart Steps to keep in mind while buying term policies

10 Most Frequently Asked Questions - FAQs on Term Insurance

Who Is A Nominee In A Life Insurance Plan?

Why Renewal of Term Insurance Plan is Important

Guide for Buying Online Term Insurance Plans for Senior Citizens

Can You Apply For A Life Insurance After Getting Heart Attack? Here is Everything You Need To Know

How to Buy a Term Life Insurance Online

When are Millennials required to take out a life insurance policy?

Choosing a Life Insurance Beneficiary

5 Easy Steps to Buying A Policy

Choose the Nominee of a Term Life Insurance Plan Wisely

Why You Should Buy Term Insurance under the MWP Act (Married Women’s Property Act)?

Is Life Insurance For Millennials Really Needed?

Types of Insurance You Must Invest in for Secure Future

How to Choose Life Insurance for All Ages?

What Is The Life Insurance Penetration In India And How Does It Compare Globally?

Can You Transfer Life Insurance Policies to Another Company in India?

All You Need to Know About Life Insurance - Its Benefits, Features, and Types of Life Insurance

Term Insurance for Home Loan: How Term Plan Helps in Paying Off Home Loan?

Do Life Insurance Premiums Increase Every Year?

Is it Possible to Reduce Life Insurance Premium without Affecting Sum Assured?

5 Reasons Why a Women Should Buy a Life Insurance

Health Insurance VS Life Insurance

Kotak Life Claim Settlement Ratio

Everything You Must Know About ULIP Riders

How to Choose a Life Insurance Policy

Can NRI Buy Life Insurance in India?

What is Minimum Life Insurance Policy?

Life Insurance with Money Back vs Without Money Back

All about Your Rights and Duties While Buying Life Insurance Policy

Difference Between Term Insurance and Endowment Plan

5 Things to Keep in Mind While Buying Life Insurance Policy

Unit-Linked Life Insurance (ULIPs) vs. Term Insurance

Take 100% Responsibility of Your Family with Term Life Insurance

Life Insurance vs Mutual Funds

How to Revive the Lapsed Life Insurance Policy?

Details Required To Be Filled In A Life Insurance Form

How Much Life Insurance Do You Need?

5 Things to Consider Before You Buy Life Insurance

Life Insurance for Overweight Applicants

Beware of Phishing & Fraud Insurance Calls

7 Superficial Reasons People Avoid Buying Insurance Online

Loan Against Life Insurance Policy

What is Human Life value and a Human Life Value Calculator?

Is Return-of-Premium (ROP) in Life Insurance Worth It?

6 Different Types of Insurance Policies

Life Insurance Beneficiary

NRI Premium Payment Options

Best Insurance Plans in India

Why Term Insurance for Women is Important?

Life Insurance vs Health Insurance

Term Insurance Tips for NRIs in India

How To Use Different Types Of Life Insurance For Retirement Planning?

What is an Endowment Plan?

Life Insurance Plans for Women

What is the Difference Between Limited and Regular Pay Insurance Plan?

Why Online Term Insurance Plans Cheap?

Why Your Family Should Know About Your Life Insurance Policy?

Choosing the Right Life Insurance

Important Factors to Consider While Choosing the Right Term Period for Your Term Insurance Plan

What is Group Insurance?

Term Life Insurance vs. Accidental Death Insurance

Insurance Changes You Need to Make Post Marriage

Nominee in insurance - A Complete Guide on nomination in insurance

“Life” Insurance or “Death” Insurance?

Term Insurance Claim Process

Staying Insured While Investing

Customer Awareness on Information Security

9 Most Important Things You Must Learn About Paying Life Insurance Premium

What is Life Insurance?

Types of Life Insurance Policies in India

Comparing low premium term insurance Is Not the Only Factor While Buying Life Insurance

Life Insurance and Millennials

4 Benefits of Gifting Life Insurance Cover to Your Spouse

When Should You Review Term Life Insurance of Yours?

Is It Time to Review Life Insurance Policy of Yours?

Is Voluntary Life Insurance the Same as Basic Life Insurance?

5 Ways to ensure faster settlement of claims

Why do most Indians choose the wrong way to buy life insurance?

Voluntary Life Insurance Policy Vs Group Life Insurance

Life Insurance Policy Closure

1 CR Term Insurance Plan: How to Pick the Best 1 CR Term Plan

Why You Should Never Cancel Life Insurance Policy

ULIPs: Suitable for all

Difference Between Money Back and Endowment Policy

Different Types Of Life Insurance In India

Importance of Checking Claim Settlement Ratio before Buying Life Insurance

6 Things You May Not Know about Life Insurance

Insurance Vs Investment - A Guide to Your Financial Goals

Term Life Insurance Vs Money Back Life Insurance

5 Reasons Why You Need Life Insurance in College

How Much Life Insurance Cover Do I Need?

How to Select a Perfect Life Insurance Policy in India to Protect Your Future?

What is the Current Trend in Term Insurance?

Compare Different Life Insurance Products Offered By Kotak Life

A Step-by-Step Guide: How To Make An Investment Plan?

Life Insurance Vs. Mutual Funds Investment

Different Kind of Deaths that are Not Covered in a Term Insurance Plan

Difference Between Insurance and Assurance?

Can a Term Plan be the Substitute for a Retirement Plan?

How to Choose the Right Life Insurance Policy for Your Age?

Think About Life Insurance Sooner than Later

All About Life Insurance and How It Works?

How Many Insurances Should I Have?

What Should One Consider Buying: Term Insurance or Traditional Life Insurance

Various Term Insurance Premium Payment Options Available in India

What is Sum Assured in Endowment Policy?

Important Life Insurance Terms You Must Know

A Term Insurance Guide for Disabled People

Savings cum Protection Plans Secures Your Family from Unforeseen Events

Types of Life Insurance Or One Investment, Many Options

Life Insurance for Millennials

How to Find the Best Term Insurance Plan in Seven Steps

Do Your Financial Planning with Life Insurance!

Process of Filing A Claim For Life Insurance

Is it Possible to Make Changes in a Term Plan’s Specification Post Purchase?

How to Buy a Life Insurance Plan?

Is It Advisable To Have Multiple Life Insurance Policies?

What Is Financial Planning?

Sabse Pehle Life Insurance

What Is Social Impact Investing and How Does It Benefit Society?

All about IRDAI

Life Insurance for Overweight Applicants

What is a Single Premium Term Plan and its Tax Benefit?

Adding A Child to Your Life Insurance Policy?

Is it Worth Buying Disability Rider on Term Insurance?

Benefits of Buying Term Insurance Plan for Senior Citizens in India

How Does Life Insurance Work?

5 Advantages of Life Insurance Going Digital

Does Family History Affects your Term Life Insurance Rates?

Most Common Life Insurance Riders to Enhance Your Existing Policy

Why is Medical Test Important While Buying a Term Insurance?

Is Life Insurance an Investment?

What are the Benefits of Endowment Policy?

What Is Staggered Payment Option Under Term Insurance Policy?

Does Life Insurance Policy Cover Covid Death?

5 Common Life Insurance FAQs and Answers

Does Life Insurance Cover Terminal Illness?

What Should One Expect During the Medical Evaluation for Life Insurance?

What Is Insurance Coverage?

Why Do Life Insurance Agents Avoid Selling Term Plans?