Close

Buy a Life Insurance Plan in a few clicks

Now you can buy life insurance plan online.

Kotak e-Term

Protect your family's financial future.

Kotak Gen2Gen Protect

Insurance and Investment in one plan.

Close

Get a Call

Enter your contact details below and we will get in touch with you at the earliest.

  • Select your Query

Thank you

Our representative will get in touch with you at the earliest.

What is Surrender Value in Insurance, and How is it Calculated?

Surrender value can allow policyholders to exit a policy early and recover some of the premiums paid. It is calculated by subtracting the surrender charges or penalties from the cash value of the policy.

  • 87,815 Views | Updated on: Jun 19, 2025

What is Surrender Value in Insurance?

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

Surrender value meaning refers to the amount a policyholder can receive if they decide to terminate their life insurance policy before its maturity. Think of it as a way to recover some of the investment you have put in. This value, also known as the cash surrender value, is the accumulated component of an insurance policy paid upon cancellation. In simple terms, surrender value is the amount the insurer pays the policyholder when they decide to exit the policy early. It applies to traditional insurance plans, such as whole life or endowment, but is not available for term plans. So, understanding the surrender value in insurance can be a big help if you are considering early withdrawal.

What are the Types of Surrender Values?

Now that you understand what is surrender value in life insurance, the next thing you should know about is its types. Generally, there are two types of surrender values: guaranteed and non-guaranteed.

Guaranteed Surrender Value

Guaranteed surrender value refers to the amount of money that an insurance company promises to pay to a policyholder if they choose to surrender their policy before the end of its term. This value is usually mentioned in the policy document and is calculated based on the premiums paid, policy term, and other factors specified in the policy. It is a fixed amount and does not change throughout the policy term. The value is usually lower than the non-guaranteed surrender value.

Non-Guaranteed Surrender Value

It is also known as the special surrender value, which is the amount of money an insurance company may pay a policyholder if they choose to surrender their policy before the end of its term. This value is not fixed and depends on the company’s performance, market conditions, and other factors that affect the policy’s financial viability. The non-guaranteed surrender value is usually higher than the guaranteed surrender value, but there is no assurance that it will be paid.

It is calculated based on the policy’s accumulated bonuses, which the insurance company declares based on its financial performance. These bonuses are usually of two types: reversionary bonus and terminal bonus.

a) Reversionary Bonus

A reversionary bonus is a bonus declared by an insurance company every year during the policy term. It is a percentage of the sum assured and is added to the policy’s surrender value. Once declared, the reversionary bonus is guaranteed and cannot be taken back by the insurance company.

b) Terminal Bonus

A terminal bonus is a bonus that is paid by an insurance company to a policyholder when the policy is surrendered or matures. It is a one-time payment and is calculated based on the policy’s performance and the company’s financial condition at the time of surrender or maturity.

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

How to Calculate the Surrender Value of Policy?

The cash value of 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.

The surrender value in insurance policy is calculated using a formula that takes into account several factors. These include the number of premiums paid, the duration of the policy’s in-force period, the cash value of the policy, and any surrender charges or penalties that may apply.

Guaranteed Surrender Value

It is the minimum amount a policyholder can receive if they decide to exit their life insurance policy early. Calculated based on a fixed percentage of the total premiums paid (excluding premiums for extra benefits or riders), it typically increases as the policy ages. In most cases, insurers offer around 30% of the total premiums paid once the policy has completed at least three years. This amount provides a basic level of protection, ensuring policyholders can retrieve a portion of their investment if they need to surrender the policy early. However, note that the exact calculation may vary by insurer and policy type.

Special Surrender Value

The special surrender value typically offers a higher payout than the guaranteed surrender value and is calculated based on the policy’s acquired bonus and other factors, such as the policy term and the number of years completed. Insurers determine this value by considering the policy’s paid-up value and bonuses accumulated up to the surrender date. The formula generally used is:

Special Surrender Value = Paid-Up Value + (Accrued Bonuses × Surrender Value Factor)

This option is often more favorable for policyholders who have maintained their policy over several years, allowing them to receive a higher return on their premiums if they decide to discontinue the policy.

3 Common Reasons Policyholders Surrender Their Policy

Life circumstances, financial needs, and evolving priorities often influence decisions about retaining insurance policies. For many policyholders, surrendering a policy can feel like a practical step, even if it means forfeiting long-term benefits. Here are some of the primary reasons policyholders decide to surrender their life insurance policies:

A Better Insurance Policy

Sometimes, policyholders find another insurance policy that better suits their evolving financial goals or coverage needs. New policies may offer enhanced benefits, lower premiums, or features that align better with current life stages or financial strategies, making the switch appealing.

Unable to Afford Premiums

Financial situations can change unexpectedly, and if a policyholder can no longer afford the premium payments, surrendering the policy might seem like the best option. This decision can help avoid lapses in coverage, especially if maintaining premium payments becomes financially challenging.

Need a Large Amount of Money for an Unexpected Event

Unexpected life events, such as medical emergencies, family obligations, or urgent expenses, can lead policyholders to surrender their policy to access immediate funds. In such cases, the surrender value in insurance offers financial relief, albeit at the cost of the policy’s future benefits.

Factors to Consider While Calculating Surrender Value

The policy surrender value is not a simple calculation, and it is influenced by multiple factors unique to each policyholder and policy type. From the duration of the policy term to specific aspects like premium payment terms, each element plays a role in determining the surrender amount. Let’s look at the key factors that impact surrender value:

Policy Term

The length of time a policy has been active plays a major role in determining its surrender value. Generally, policies with longer durations, such as endowment or whole-life plans, accumulate higher surrender values each year.

For example, a policy might return 30% of the premiums if terminated after three years, with an additional 2% added monthly. This means that holding a policy for longer can significantly increase the percentage of premiums returned, with younger individuals often benefiting from longer terms, ideally between 35 to 40 years, rather than shorter ones.

Age and Health of the Policyholder

A policyholder’s age and health can impact the surrender value, especially if the policy includes health-related riders or bonuses. Older policyholders may accumulate higher surrender values due to extended coverage, while younger individuals may start with lower values that increase over time.

Premium Payment Term

The term over which premiums are paid greatly affects the surrender value. Longer premium payment terms generally lead to a higher surrender value since the accumulated cash value grows over time. These premiums contribute to the policy’s cash value, which becomes available upon surrender, less any applicable fees or penalties.


For instance, in some policies, individuals might receive a special surrender value after just two years of payments. However, most policies require regular premiums to have been paid for three years to receive the surrender value.

What is Cash Surrender Value?

The cash surrender value in insurance is the amount a policyholder receives when canceling their life insurance policy before maturity. This value represents the accumulated cash in the policy’s account minus any surrender fees or penalties. It serves as the liquid value a policyholder can access if they decide to surrender their policy, and it is often available in whole-life or universal-life policies that build a cash value over time. Cash surrender value provides an exit option, allowing policyholders to retrieve a portion of their investment. However, it may come at the expense of the policy’s long-term benefits.

Is Surrendering My Policy a Good Idea?

Deciding to surrender a policy depends on personal circumstances and financial goals. If the policy no longer aligns with your needs, or if you find a better investment opportunity, surrendering could be beneficial. However, surrendering a policy early typically involves a financial loss due to penalties and forfeited benefits. Before making this decision, consider alternative options like reducing premiums or borrowing against the policy. It is important to evaluate the long-term financial impact, as surrendering a policy may leave you without future protection and could reduce overall returns on your initial investment.

Do All Policies Have a Surrender Value to Offer?

No, not all policies have a surrender value to offer. Being cautious and well-informed about the terms and conditions is crucial when contemplating surrendering a life insurance policy. For instance, in the case of term insurance plans, there is no compensation or surrender value if you opt to terminate the policy before its term is completed. Conversely, with insurance plans such as unit-linked insurance plans (ULIPs) and endowment plans, a surrender value will be granted if you have paid your premiums for a minimum of three years.

Wrapping Up

The surrender value, also known as the cash surrender value of life insurance, is the amount of money an insurance policyholder can receive if they terminate their policy before its maturity date. This value is based on the number of premiums paid, the length of time the policy has been in force, and the policy’s accumulated cash value. Surrender value calculations can be complex, and they vary depending on the type of insurance policy, the age and health of the policyholder, and other factors.

It is important for policyholders to understand their policy’s surrender value and how it is calculated, as it can impact their financial decisions and future insurance needs. Ultimately, surrendering an insurance policy should be a well-informed decision made after carefully considering the policy’s terms and the policyholder’s overall financial situation.

FAQs on Surrender Value in Insurance

1

Who pays surrender value?

The insurance company pays surrender value to the policyholder, who decides to end the policy before its scheduled maturity date. By surrendering, the policyholder cancels future coverage in exchange for a portion of the premiums adjusted by the policy terms.

2

How much money will I get if I surrender my policy?

The payout received upon policy surrender depends on several factors, including the total premiums paid, policy tenure, and any applicable bonuses or accumulated cash value. Many insurance policies impose surrender charges that reduce the final payout, especially in the early years.

3

Who gets the surrender value?

Upon surrendering the policy, the surrender value is paid to the policyholder or, in specific cases, to the nominee assigned by the policyholder. The surrender value allows the policyholder to access a portion of the funds they have invested over the years, minus any charges. In cases where the policyholder has passed away and a nominee exists, the surrender value may be paid to the nominee, subject to the insurer’s policy guidelines and any legal obligations.

4

When is the right time to surrender your policy?

Deciding the right time depends on your financial goals, life circumstances, and the policy’s maturity timeline. Surrendering early may mean facing higher charges, while holding a policy longer may maximize its surrender value. It may be suitable if your policy no longer aligns with your needs or if you’re facing immediate financial concerns.

5

Are surrender values in insurance plans taxable?

Yes, surrender values can be taxable depending on how long the policy was held before surrender. If surrendered within a short period (typically five years), the proceeds are often taxable. For certain policies, like whole life or ULIP plans, tax benefits may apply if held beyond this period. However, tax laws differ by region and policy type, so reviewing local tax regulations or consulting a tax advisor will clarify any tax obligations associated with your policy’s surrender value.

6

What is the difference between surrender value and cash value?

Surrender value is the amount the policyholder receives if they cancel their policy early, typically after accounting for surrender charges. Cash value, in contrast, is the portion of your premiums invested and accumulated within some policies, like whole life or ULIPs. The cash value grows tax-deferred, but unlike the surrender value, it doesn’t include penalties. Essentially, surrender value is the actual payout upon policy termination, while cash value is the amount growing within the policy itself.

7

How do I maximize my surrender value and avoid surrender charges imposed by the insurance providers?

To maximize your surrender value, consider holding your policy for a longer period. Policies accumulate more value over time, and surrender charges often reduce or disappear after several years. Avoid taking loans or early withdrawals from the policy, as these can reduce cash value and surrender worth.

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

Kotak e-Term

Download Brochure

Features

  • Life Cover till 85 years for Life & Life Secure Option
  • 3 Payout Options
  • Special Rates for Women
  • Option to exit the policy with premium refund at the age of 60*
  • Special Rates for Non-Tobacco Users
  • Free Medical Check Up every 5th year**

Ref. No. KLI/22-23/E-BB/2435

T&C

Buy Online

The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.

Get a Term plan that offers high coverage at low, affordable premiums