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How to Calculate the Cash Surrender Value of Life Insurance?


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June 07, 2022

By : Bajaj Allianz Life

A life insurance policy can help you secure the financial future of your family members, even if anything unfortunate were to happen to you. However, there may be certain situations where you may need to surrender the policy before it matures. This is where knowing about the surrender value of your life insurance plan becomes essential.

 

Surrender Value and Associated Charges

 

Whether you’re tired of paying high premiums or you no longer have beneficiaries who need the death benefit from your plan, you need to know the cash surrender value of your life insurance policy before terminating it.

Cash surrender value refers to the amount you will receive from your insurer when you cancel a plan before it matures. In other words, if you terminate your policy mid-term, you may be eligible for a certain payout amount against the premiums you’ve paid. This depends up on the plan you have opted for and its underlying terms and conditions. Additionally, as per IRDAI (Unit Linked Insurance Products) Regulations, 2019, in case of a ULIP if you choose to terminate the policy after 5 years, no surrender charges can be imposed on it by your insurance provider. However, in case of other products, charges will be applicable.

If you’re wondering how this surrender value is calculated, fret not, for we’ve got you covered! In this article, we review the process of calculating the surrender value of a life insurance plan as well as the alternatives to surrendering your policy.

 

How is Cash Surrender Value Calculated?

 

Calculating the surrender value of your insurance plan is quite simple. All you need to do is add the total premiums paid and subtract the charges levied by your insurer for surrendering the plan mid-term.

However, this is not a blanket calculation process. Before you can calculate the surrender value of your life insurance policy, you must know the difference between guaranteed surrender value and special surrender value as the cash surrender value of your policy will be hinged on these two key concepts when it comes to traditional life insurance plans. For ULIPs, a discontinuance charge will apply between the first to fifth years.

 

Surrender Values and How to Calculate Them

 

Guaranteed Surrender Value: This is the amount that is guaranteed to the policyholder in case there is a voluntary termination of the policy by the policyholder prior to the maturity of the policy. You can claim this surrender value after 3 years of paying your insurance premiums.

 

Alternatives to Surrendering Your Life Insurance Plan

 

While knowing the cash surrender value of your policy is essential, surrendering it may not always be the most prudent course of action when in need of cash.

Alternatively, if you have an endowment plan, you can also borrow against the said policy after you’ve paid premiums for at least 3 years. For ULIPs, they do not have a loan option, but they do offer a partial withdrawal option for policyholders. While the rules of borrowing may be different for different insurance providers, generally you may borrow up to 90% of your policy’s cash value. This may help you meet your immediate cash requirements without losing out on the policy’s coverage and death benefits.

 

Wrapping it up

 

You can calculate the cash surrender value of your policy within seconds with the help of an online life insurance payout calculator. However, by surrendering your policy, you do stand to lose out on sizable benefits since the amount you receive will be lower than the premiums you’ve already paid. Thus, in such cases, looking into alternatives like loans against policy depending on the rules of borrowing of the insurers or partial withdrawals in case of ULIPs may be more prudent options than simple terminations.

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The above information is for general understanding and is meant to educate the general public at large. The reader will have to verify the facts, law and content with the prevailing tax statutes and seek appropriate professional advice before acting on the basis of the above information. 

The views stated in this article is not to be construed as investment advice and readers are suggested to seek independent financial advice before making any investment decisions. For more details on risk factors, terms and conditions please read sales brochure & policy document (available on www.bajajallianzlife.com) carefully before concluding a sale.