How to Calculate the Surrender Value of Life Insurance Policy?

Life insurance policies are usually purchased for the long-term as it is purchased to protect and safeguard the financial future of a person and his loved ones. However, there are times when a person thinks about giving up or surrendering a life insurance policy.

Surrendering a life insurance policy implies ending the association with your insurance provider. While many reasons why a policyholder can surrender his/her policy, such as the policy not providing adequate coverage, the policyholder cannot pay the premium sum. Surrendering a policy that is close to its maturity period causes you to lose a lot of advantages.

What is a Surrender Value?

A surrender value is usually the sum owed by the life insurance provider when you decide to surrender or give up on your life insurance policy. Whenever you surrender your life insurance policy, you receive a certain amount of premiums that you regularly paid back from the insurance provider. This receipt of payment is known as a surrender value.

How is Surrender Value Calculated?

All those policyholders looking for ways to calculate the surrender value of life insurance must note that calculating the surrender value in the present technologically advanced times is extremely easy.

You can now calculate the exact surrender value in minutes with the help of an effective cloud-based tool that is known as a surrender value calculator. You can instantly access this cloud-based surrender value calculator online to check the surrender value.

To obtain this information, all you require to do is present some basic details like the policy term, amount of the premium paid, premium payment mode, number of years the policy has completed, premium installment amount, etc., exact value.

Once you present all these details, the online surrender value calculator immediately determines your life insurance policy's surrender value.

When does a Life Insurance Policy Acquire a Surrender Value?

A life insurance policy acquires a surrender value in the following two scenarios:

a.When the policy duration is 10 years or more

In this situation, the surrender value of the life insurance policy is obtained if the premium amount is regularly paid at least for three consecutive years.

b. When the policy duration is less than 10 years

In this situation, the life insurance policy gets a surrender value if the policy's premium amount is regularly paid at least for two consecutive years.

Types of Surrender Value in a Life Insurance Policy

There are generally two kinds of surrender value in a life insurance policy: guaranteed surrender value and a special surrender value.

1. Guaranteed surrender value

Under this guaranteed surrender value of life insurance, the amount or a fixed sum guaranteed is to be owed by the insurance provider on surrendering or giving up on the life insurance policy before completion of the maturity period.

The guaranteed surrender value of a life insurance policy is decided based on the surrender value determinant stipulated in the policy papers. This surrender value determinant is usually the percentage of the cumulative premium amount paid. The surrender value of a life insurance policy, in this case, rises with the number of years of the policy.

The surrender value factor will grow close to 100 percent of the total premiums paid when the life insurance policy progresses nears maturity. Therefore, in this case, the guaranteed surrender value is computed as cumulative premiums paid that get multiplied by the surrender value factor.

2. Special surrender value

This special surrender value of a life insurance policy is customarily higher than the guaranteed surrender value. However, this entirely depends on the insurance provider. Specific surrender value relies on the amount ensured, premiums paid by the policyholder, policy course, and bonuses.

Usually, this special surrender value is determined with the formula - (Accrued bonuses + Paid-up value) multiplied by the surrender value factor. The paid-up value is calculated as the Basic sum assured multiplied by the number of premiums payable or the number of premiums paid.

Suppose you plan to surrender your existing life insurance policy due to inadequate coverage and look for a comprehensive plan to get a better financial cushion. In that case, you can buy a life insurance policy by Canara HSBC Bank of Commerce.

1. Invest 4G Plan

Invest 4G Plan is a customarily unit-linked savings insurance plan that can provide you with assured returns on all your investments. The plan offers higher premium flexibility, loyalty additions and wealth boosters for better returns and also offers partial withdrawal option that serves as a supplementary source of revenue in times of need.

2. Guaranteed Savings Plan

Guaranteed Savings Plan is an excellent and comprehensive life insurance cum savings plans that can secure your future along with that of your family members. The plan offer guaranteed returns from the investments along with tax exemptions on the premium paid under section 80C of the Indian Income Tax Act, 1961.

3. iSelect Smart360 Term Plan

iSelect Smart360 Term Plan is another life insurance policy by Canara HSBC Bank of Commerce that is popular due to multiple benefits. The plan offers limited premium payment option that means you can pay for limited years and get a life cover. You can also add your spouse to the same term insurance plan at discounted rates.

To state the obvious, giving up or surrendering your life insurance policy is not at all a rational decision, especially when it's close to maturity, as you never receive the entire sum that you paid as premiums. However, if you think your policy is not yielding decent returns, you can consider making such a decision or you can buy a new life insurance policy to suit your financial goals.