FAQ Schema:
Close
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 with Kotak e-Term. 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 Lifetime Income Plan

Retirement years are the golden years of life. Know more

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

Surrender value can provide policyholders with a way to exit a policy early and recover some of the premiums paid.

  • Oct 10, 2019
  • 46,168 Views

New

    Key takeaways

  • The cash surrender value is defined as the accumulated component of an insurance policy that is paid if you cancel your 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.
  • The surrender value of a life insurance policy is calculated using a formula that takes into account several factors.
  • A surrender value is an amount a policyholder receives when they surrender their life insurance policy before its maturity date.

Surrender value, also known as cash surrender value of life insurance, is an important concept in the insurance industry that refers to the amount of money an insurance policyholder is entitled to receive if they terminate their policy before the end of its term. It represents the cash value of the policy, which is the accumulated premiums paid by the policyholder plus any investment earnings minus any fees or charges.

If you are hearing the term surrender value for the first time, keep reading because we will cover everything from what you mean by surrender value, what its types are, how to calculate the 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 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 that the insurer pays to the policyholder when the latter decides to terminate the policy before maturity. You need to 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.

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 of a life insurance policy is calculated using a surrender value formula that takes into account several factors. These include the number of premiums paid, the duration of time for which the policy has been in force, the cash value of the policy, and any surrender charges or penalties that may apply.

To calculate the surrender value of a life insurance policy, you will need to follow these steps:

Step 1: Determine the cash value of the policy

The cash value of a life insurance policy represents the amount of money that has accumulated in the policy over time. It includes the premiums paid, as well as any investment gains or losses. You can find the cash value of your policy on the most recent policy statement.

Step 2: Determine the surrender charges or penalties

Most life insurance policies come with surrender charges or penalties that are designed to discourage policyholders from surrendering their policies before the end of the term. These charges can vary depending on the type of policy, the length of time the policy has been in force, and the number of premiums paid. You can find information about the surrender charges or penalties in the policy document.

Step 3: Calculate the surrender value

To calculate the surrender value of your policy, subtract the surrender charges or penalties from the cash value of the policy. The resulting amount is the surrender value that you will receive if you choose to surrender your policy.

It is important to note that the surrender value of a life insurance policy may be subject to income tax. If the surrender value is greater than the premiums paid, the difference may be considered taxable income. It is advisable to consult with a tax professional to determine the tax implications of surrendering a life insurance policy.

When Does a Life Insurance Policy Acquire a Surrender Value?

Life insurance policies are an important financial instrument that provides security and financial support to individuals and their families in times of need. A life insurance policy can offer financial assistance to a family in the event of the policyholder’s unexpected death. However, there may be times when a policyholder may want to surrender their life insurance policy for various reasons, such as a financial crisis or a change in their financial goals. In such cases, it is important to understand when a life insurance policy acquires a surrender value.

A surrender value is an amount a policyholder receives when they surrender their life insurance policy before its maturity date. The surrender value is the cash value of the policy that has accumulated over time, and it varies based on the policy’s terms and conditions. Generally, life insurance policies acquire a surrender value after a certain period of time, usually after three years of policy maturity.

When a policyholder starts a life insurance policy, they pay a premium, which is the amount they pay to the insurance company for coverage. The premium is invested by the insurance company, and over time, the investment earns interest. The amount earned as interest is added to the cash value of the policy, which increases over time. As a result, the longer a policyholder holds their life insurance policy, the more the cash value of their policy accumulates.

After a specific period, usually, three years, a life insurance policy acquires a surrender value. This value is calculated by the insurance company and is based on several factors, such as the policyholder’s age, the amount of premium paid, and the policy’s terms and conditions. The surrender value can be requested by the policyholder if they wish to surrender their policy before the policy matures.

It is important to note that surrendering a life insurance policy before its maturity date can result in a lower payout than the sum assured. This is because the surrender value is typically lower than the total premium paid by the policyholder. Additionally, the policyholder may have to pay surrender charges, which are fees charged by the insurance company for surrendering the policy before maturity.

What are the Types of Surrender Values?

Surrender value is the amount of money that an insurance policyholder will receive if they choose to terminate their policy before its maturity date. It is an important factor to consider when purchasing an insurance policy as it affects the policy’s financial viability. 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 guaranteed surrender value is usually lower than the non-guaranteed surrender value.

Non-guaranteed surrender value

Non-guaranteed surrender value, also known as the special surrender value, is the amount of money that an insurance company may pay to 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.

The non-guaranteed surrender value is calculated based on the policy’s accumulated bonuses, which are declared by the insurance company 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. The reversionary bonus is guaranteed once it is declared 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.

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 careful consideration of the policy’s terms and the policyholder’s overall financial situation.

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

FAQs

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 the paid-up value of 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

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

- A Consumer Education Initiative series by Kotak Life

Similar Articles

वरिष्ठ नागरिकों के लिए ऑनलाइन टर्म इंश्योरेंस प्लान खरीदने के लिए गाइड

Why Buying a Term Insurance is Important for all Parents

How to Choose Life Insurance for All Ages?

5 Smart Steps to keep in mind while buying term policies

Why Online Term Insurance Plans Cheap?

Kotak Life Claim Settlement Ratio

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

Key Things to Review in Your Life Insurance Policy Document

Is it Worth Buying Disability Rider on Term Insurance?

How to Buy a Term Life Insurance Online

How Many Insurances Should I Have?

Life Insurance for Overweight Applicants

What are robo-advisors in insurance?

भारत में जीवन बीमा पॉलिसियों के प्रकार

How to Find the Best Term Insurance Plan in Seven Steps

Does Life Insurance Policy Cover Covid Death?

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

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

7 Superficial Reasons People Avoid Buying Insurance Online

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

क्रिटिकल इलनेस राइडर के साथ टर्म इंश्योरेंस के लाभ

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

Insurance Changes You Need to Make Post Marriage

Life Insurance Nominees: 5 Must-Know Facts for Beneficiaries

Voluntary Life Insurance Policy Vs Group Life Insurance

What Happens If I Stop Paying My Life Insurance Premium?

What is Underinsurance & The Dangers of Being Underinsured

Life Insurance and Millennials

Benefits of Term Insurance with Critical Illness Rider

Various Term Insurance Premium Payment Options Available in India

A Term Insurance Guide for Disabled People

Different Types Of Life Insurance In India

All about Your Rights and Duties While Buying Life Insurance Policy

Difference Between Insurance and Assurance?

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

Guidelines for Linking Aadhar and PAN to Insurance Policies

Nominee in insurance - A Complete Guide on nomination in insurance

What is the Difference Between Insurance and Reinsurance?

Benefits of Buying Term Insurance Plan for Senior Citizens in India

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

Types of Insurance You Must Invest in for Secure Future

6 Things You May Not Know about Life Insurance

How to Buy a Life Insurance Plan?

Process of Filing A Claim For Life Insurance

Why Term Insurance for Women is Important?

Customer Awareness on Information Security

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

Term Plan with Return of Premium (TROP)

Term Insurance Tips for NRIs in India

Is Voluntary Life Insurance the Same as Basic Life Insurance?

Health Insurance VS Life Insurance

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

How to Revive the Lapsed Life Insurance Policy?

How to Choose a Life Insurance Policy

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

What is the Current Trend in Term Insurance?

Guide for Buying Online Term Insurance Plans for Senior Citizens

8 Things to Consider Before You Buy Life Insurance

Is It Time to Review Life Insurance Policy of Yours?

Life Insurance for Millennials

All about Life Insurance Calculators

5 Reasons Why You Need Life Insurance in College

All about IRDAI

Role of Life Insurance in Your Financial Portfolio

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

Life Insurance Vs. Mutual Funds Investment

Term Life Insurance vs Accidental Death Insurance

How to Use Different Types of Life Insurance for Retirement Planning?

Does Life Insurance Pay for Suicidal Death?

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

Choose the Nominee of a Term Life Insurance Plan Wisely

NRI Premium Payment Options

What Is Staggered Payment Option Under Term Insurance Policy?

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

Does Life Insurance Cover Terminal Illness?

What is Sum Assured in Endowment Policy?

Is Life Insurance an Investment?

Life Insurance Policy Closure

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

How do life insurance payouts work?

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

जीवन बीमा पर ऋण

Why Your Family Should Know About Your Life Insurance Policy?

Why do I Need Life Insurance?

What is Group Insurance?

Digital Life Certificate for Pensioners Seeking Pension

Important Terminologies of Life Insurance

What is Insurance Coverage? Overview, Types, and Examples

What Is Investment Insurance?

भारत में सर्वश्रेष्ठ टर्म प्लान कैसे चुनें?

Biggest Life Insurance Myths

How to Calculate Human Life Value(HLV)?

5 Common Life Insurance FAQs and Answers

Think About Life Insurance Sooner than Later

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

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

Different Types of Insurance Policies in India

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

All About Life Insurance and How It Works?

5 Benefits of Gifting Life Insurance Cover to Your Spouse

Importance of Checking Claim Settlement Ratio before Buying Life Insurance

Types of Life Insurance Policies in India

5 Ways to ensure faster settlement of claims

6 Different Types of Insurance Policies

Staying Insured While Investing

All You Need to Know About KYC

How Much Life Insurance Cover Do I Need?

Important Features of a Term Insurance Plan

Important Life Insurance Terms You Must Know

Do Your Financial Planning with Life Insurance!

Can NRI Buy Life Insurance in India?

Top 5 Common Life Insurance Myths and Facts

Beware of Phishing & Fraud Insurance Calls

When Should You Review Term Life Insurance of Yours?

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

Why Life Insurance Is Always a Smart Decision

Best Insurance Plans in India

What are the Benefits of Endowment Policy?

क्या जीवन बीमा एक निवेश है?

Health Insurance VS Life Insurance

Loan Against Life Insurance Policy

5 Easy Steps to Buying A Policy

How Does Life Insurance Work?

Why Do Life Insurance Agents Avoid Selling Term Plans?

Why You Should Never Cancel Life Insurance Policy

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

Difference Between Money Back and Endowment Policy

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

Choosing a Life Insurance Beneficiary

What happens to joint life insurance after divorce?

5 Advantages of Life Insurance Going Digital

How Often You Must Review Your Life Insurance Policy?

जीवन बीमा क्या है?

Term Insurance Claim Process

Savings cum Protection Plans Secures Your Family from Unforeseen Events

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

What Is a Whole Life Insurance Plan?

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

Reasons Why Term Insurance Claims Get Rejected

How to Customize Your Life Insurance Policy with Riders

Adding A Child to Your Life Insurance Policy?

Why is Medical Test Important While Buying a Term Insurance?

Always keep your Nominee informed

Who Is A Nominee In A Life Insurance Plan?

Life Insurance for Overweight Applicants

Role of IRDAI in the Insurance Sector

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

Is Life Insurance For Millennials Really Needed?

Term Insurance Vs Life insurance: Small Details, Big Differences

5 Reasons Why a Women Should Buy a Life Insurance

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

“Life” Insurance or “Death” Insurance?

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

What is Life Insurance?

Life Insurance Plans for Women

Does Family History Affects your Term Life Insurance Rates?

5 Things to Keep in Mind While Buying Life Insurance Policy

Should You Buy Life Insurance After Getting Married?

Choosing Between Short-Term & Long-Term Insurance Plans

Take 100% Responsibility of Your Family with Term Life Insurance

What Is Insurance Rider and It’s Benefits?

बीमा क्षेत्र में IRDAI की भूमिका

Life Insurance Beneficiary

Sabse Pehle Life Insurance

All About Backdating in Life Insurance

How Do Term Insurance Plans Differ for Smokers?

Types of Life Insurance Or One Investment, Many Options

Do Life Insurance Premiums Increase Every Year?

Is It Advisable To Have Multiple Life Insurance Policies?

What is Minimum Life Insurance Policy?

How To Choose The Right Life Insurance

Most Common Life Insurance Riders to Enhance Your Existing Policy

How Much Life Insurance Do You Need?

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

Why One Must Buy Term Insurance before 25 Years

Why Renewal of Term Insurance Plan is Important

In India, should NRIs purchase life insurance?

Details Required To Be Filled In A Life Insurance Form

Compare Different Life Insurance Products Offered By Kotak Life

Life Insurance vs Mutual Funds

Can An Individual Buy Multiple Term Insurance Plans?

FAQs on Life Insurance

Life Insurance with Money Back vs Without Money Back

How to Make Death Claims on Life Insurance?

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

Life Insurance and Retirement Planning

Insurance Vs Investment - A Guide to Your Financial Goals

Terms and Conditions of Term Insurance Plans