Kotak Life
Close

Buy a Life Insurance Plan in a few clicks

Close

Now you can buy life insurance plan online.

Kotak e-Term Plan

Kotak e-Term Plan provides a high level of protection to your loved ones in your absence. Know more

Kotak Guaranteed Savings Plan

Kotak Guaranteed Savings Plan is a savings and protection plan that helps you achieve long-term financial goals and provides an insurance cover against any eventuality. Know more

Kotak E-Invest

Kotak e-Invest plan is a complete Unit-Linked Insurance Plan that can be customized as per your goals and needs. Know more

Kotak Health Shield

Kotak Health Shield Plan helps secure your finances in sudden medical expenses such as Cardiac, Liver, Neuro, and Cancer (all early and significant illness stages/conditions of cancer), along with offering protection for personal accidents - in case of accidental death or disability. Know more

Kotak Lifetime Income Plan

Kotak Lifetime Income Plan gives you the security of your income continuing throughout your life and in your absence throughout your spouse's lifetime! 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 |
  • 35,031

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

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 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

Features

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

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

T&C

Browse our library of resources

- A Consumer Education Initiative series by Kotak Life

Similar Articles

What is Term Insurance - A Complete Guide

Gift Your Father A Term Insurance Plan This Father's Day

What are incremental term insurance plans?

Advantages of Buying Term Insurance in Your 50s

Which Term Insurance to Choose: Lump Sum or Staggered Pay-out Plan?

What Is a Renewable Term Insurance Policy?

Is It Good To Buy A Term Insurance Plan In 2022?

Planning For Son or Daughter's Wedding

Why Married People Should Buy Term Insurance Under MWP Act?

Why Should You Not Take A Term Plan Without Medical Test in India?

Insuring Against Accidents with an Accidental Death Insurance Rider

Should You Have Multiple Term Life Insurance Policies?

Endowment Plans vs Term Plans: Understanding the difference

Tax Benefits of Term Insurance in India

All you need to Know about Term Insurance Plans for Housewives

Does Term Insurance Cover Accidental Death?

Insurance Policy for Housewife In India

Is a Term Insurance Policy Portable?

What Is a Passive Income? Why Should You Use It to Buy a Term Plan?

Term Insurance: Smokers vs Non-Smokers

What is Critical Illness Policy

6 Types of Death not covered in Term Insurance Plan

Reasons You Need Term Insurance Plan as a Self-Employed Person

What is Form 16, Form 16 part A, Form 16 part B, Information Required and FAQs

Planning For Children's Future

Why Should You Buy Term Insurance in 2022?

Term Insurance – Why You Must Include In Your Financial Planning?

Which Death Type Does Your Term Plan Not Cover?

How Does A Term Life Insurance Work in India?

Can Senior Citizens Avail Term Insurance?

Why Buy Term Insurance Even at Rising Rates?

Term Insurance Calculator - Everythng You Need To Know

Different Types of Protection Plans

Term Insurance with Critical Illness

Eligibility Criteria for Buying Term Insurance in India

What Should You opt for - Limited or Premium Pay?

Is There Any Tax Benefit on Term Insurance?

Term Plans are Definitely Cheaper than You Think!

Choosing Riders for Insurance Plans

10-Year Term Life Insurance Policy - Explained in Detail

Why Term Insurance Is Better Than ULIP?

What is the Right Term Period For Term Insurance Policy? Here's How You Should Choose!

8 Factors to consider before choosing a Critical Illness Insurance

Advantages & Disadvantages of Term Insurance in India

What Happens to Term Insurance Plan With No Beneficiary - Kotak Life

Individual Life Insurance vs. Group Term Life Insurance

Increasing Term Insurance and Riders

Why is it important to buy term insurance plan?

Why Buying a Term Plan Is Smarter Than Traditional Life Insurance Products

Term Insurance Plans and Policies for Smokers

Tips to Choose the Right Term Period for Term Insurance Plan

What Types of Deaths Are Covered in a Term Insurance Plan?

How To Choose the Right Term Insurance Plan?

How Not To Get Your Term Insurance Claim Rejected

Why Term Plan Should Be The First Step To Securing Your Future?

5 Reasons to Buy Term Insurance When You are in Your 30s

Why Surrendering Your Term Plan Policy In The Final Phase Maybe A Bad Idea?

How to Ensure That Your Term Insurance Claims Are Never Rejected?

Calculating Term Insurance Premium

Can I Extend the Tenure of My Term Insurance Plan?

Key IRDAI Regulations That Changed Face Of Term Insurance Industry In 2020

What Should Be The Duration Of Your Term Plan in India?

Insuring yourself against Ill Health with a Critical Illness Rider

What Are Insurance Riders and How to Choose Them in a Term Plan?

What are the Documents Required for Term Insurance Plan?

Protection for your family

What is a Joint Term Insurance Plan? Key Benefits of Joint Term Plan

When is the Right Time to Buy Term Life Insurance Policy for Yourself?

How to Compare Term Insurance Online

How To Change The Nominee in Term Insurance?

Importance of Term Insurance at Every Stage of Your Life

Should Youngsters, Working Couples Buy Term Insurance Plans?

Buying A Term Insurance? Don't Ignore the Claims Settlement Ratio

Different Types of Premium in Term Insurance

8 Things To Do After Buying Term Insurance

5 Things To Consider While Buying Term Insurance Plan

Ideal Features of a Suitable Term Plan - Act Now for a Stress-free Future

Insuring Against Disability With Disability Insurance Rider

What is a short term insurance policy?

Why Premium Amount for Term Insurance is So Low?

Is Group Term Life Insurance Provided By Employer Sufficient?

Term Life Insurance Plan for Smokers vs Non-Smokers

9 Ways to Help Family Members in Financial Trouble

Key Differences Between Term Insurance, ULIPs, And Health Insurance

How Much Term Life Insurance Cover Do I Need in India?

Term Insurance Basics You Should Know

Online vs Offline Term Insurance: Which Is The Better Option To Buy

Term Insurance Age Limit – Term Plan for All Age Groups

What Is the Correct Age to Buy Term Insurance?

How Much Term Insurance Do I Need

Make Your Online Term Plan Your Family's Monthly Pay Cheque

Is term Insurance Needed for People With No Dependents?

Comparing Term Plans – What Should You Look Out For

Term Plan with Spouse Cover

Is Term Life Insurance Plan an Investment or Expense?

Difference Between Term Insurance vs Life Insurance

What Are the Best Term Insurance Plans for Planning Retirement?

Why Should New Parents Buy Term Life Insurance?

Do I Need to Give a Medical Test for Term Insurance in India?

How To Choose the Right Sum Assured Under a Term Plan?

What Happens if you Hide Facts in your Term Insurance?

Everything About Claim Settlement Ratio for Term Insurance

Understanding Term Insurance Riders

Do Beneficiaries Pay Taxes on Term Insurance?

Can Term Insurance Plans Be Purchased As A Gift?

Can You Increase Your Term Insurance Cover?

How to Buy 1 Crore Life Insurance Policy Without Medical Test

Term Insurance: Most Common Term Insurance Myths Explained | Kotak Life

Are The Add-ons and Optional Features of Term Insurance Plans Actually Beneficial?

Make Your Online Term Plan Your Familys Monthly Payout

Does Your Term Insurance Plan Cover Death Due to COVID-19?

How Does Term Life Insurance Work? Learn the Benefits

Busting Myths and Facts About Term Insurance Policies

Term Insurance: What Happens When You Don’t Pay Your Premiums?

Should You Buy a Term Plan After 40?

Why Should You Add a Rider to a Term Insurance Plan?

How To Calculate The Amount Of Term Life Insurance You Need?

Why Term Insurance Is Important in times of COVID-19?

8 Benefits of Term Insurance You Should Know

Can I Make Changes to My Term Insurance Policy Post Purchase?

Why should single women purchase term life insurance?

Can A Housewife Buy a Term Insurance Plan - All You Need to Know

While Buying Term Insurance Compare Features, Not Just Premiums

Term Insurance With Riders In India

Ensure Protection Against Death, Disease & Disability With Life Insurance

Can I Get Term Insurance on Behalf of My Spouse?

5 Term Insurance Benefits for Single Women

Side Effects of Covid-19 Booster Doses

Can I Buy Term Insurance for a COVID-19 Patient?

Insuring Protection Against Death With Death Insurance Rider

Why 1 Cr Term Plan Is Necessary For Family?

Cost of Term Insurance Likely to Increase Soon

How to Surrender Term Life Insurance When you have No Liabilities

9 Most Frequently Asked Questions on Term Insurance

5 Benefits of Early Retirement Planning

Best Investment Plans for Children - Secure Your Child's Future

Is it a Good Time to Buy Term Insurance During the COVID-19 Pandemic?

Why Buy Term Insurance Plan With a High Cover?

4 Reasons Why You Need Critical Illness Cover

How Much Cover Should I Take In A Term Plan?

What All Documents Required For Term Insurance In India?

4 Methods to Calculate How Much Term Insurance You Need

Buying A Term Insurance Plan? Take These Factors into Account

Can Non-Resident Indians (NRIs) Buy Term Insurance In India?

Is ₹1 Crore Term Insurance Good Enough Cover?

What is Insurance Premium - A Detailed Guide

Is Life Insurance Investment Worthy Enough

6 Reasons That Make Term Insurance a Must Buy

Term Vs. Whole Life Insurance: Which One You Should Buy in India?

All About Term Insurance Inbuilt Coverage

Know How to Invest at Every Age for Larger Returns

How to Identify Term Insurance According to Your Needs?

Steps on How to Buy Term Insurance Online

Why does every working woman need life insurance?

Top 3 Reasons Why You Should Buy A Term Plan Now

4 Things To Expect From Your Term Insurance Plan in India

Do You Need Term Insurance Cover After Retirement?

टर्म इंश्योरेंस क्या है? टर्म इंश्योरेंस का मतलब