Life insurance policies like endowment plans and money-back plans are designed to help you build long-term financial security. However, circumstances may change, prompting you to consider exiting the policy before maturity. Surrendering a life insurance policy means voluntarily terminating it and receiving the surrender value, often at the cost of losing future benefits, life cover, and part of your invested amount. Understanding the implications before making this decision is crucial.
In insurance, surrender means voluntarily closing or terminating a life insurance policy before it reaches maturity or before a claim event occurs. When you surrender a policy, you stop paying future premiums and the life cover under the policy ends. In return, the insurer may pay you a surrender value, if applicable. This amount is typically a portion of the premiums you have paid so far, after deducting certain charges as per the policy terms.
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While the process of surrendering your life insurance policy is short and simple, you should be certain about the step. Here’s why:
Life insurance benefits accumulate over time
Older policies have exponentially better portfolio growth
You lose a big part of your benefits from the policy with an early surrender
The new life insurance plan will be more expensive due to an increase in your age
You can take a loan against the policy instead of surrendering and losing all future benefits in case of emergencies
You should always check the surrender value you will receive from the policy. Also, you can borrow up to 90% of this surrender value at nominal rates. Borrowing against the policy ensures that your benefits continue to pile up while you can meet your needs easily.
After looking at all the alternative solutions, if you find that the policy still needs to be surrendered, here’s what you can do:
Make sure the policy is not in the lock-in period. Lock-in period for:
Endowment and money-back plans are three-year plans
Unit-Linked Insurance Plans are five years old
Complete the policy surrender form and visit the nearest branch of the insurer to submit the following:
KYC Documents: Photo ID, Address Proof
Bank Account Proof: Passbook Copy, Cancelled Cheque
Original policy document
After submitting the application, the process takes about 10-15 days to complete, and you should receive the surrender value in your account.
IRDAI requires insurers to ensure fair surrender values and curb mis-selling, and they may even offer higher GSVs than the minimum rules
Source: IRDAI
Not all life insurance policies offer a surrender value. Plans that are purely protection-oriented or have strict lock-in conditions may either provide no payout or impose significant restrictions if terminated early.
Pure protection life insurance policies, such as term insurance plans and critical health insurance, do not have a surrender value. Although the term plan with a return of premium option and a steady income benefit will have a surrender value.
In the case of a single-premium term insurance plan, you may receive part of the prorated premium for the completed duration of the policy.
Surrendering a life insurance policy is a major financial decision that can impact your long-term goals. Before opting for policy surrender, evaluate the life insurance surrender value, charges, and alternatives like loans or paid-up options to make an informed choice.
Surrender Value: The amount payable when you voluntarily terminate a life insurance policy before maturity
Policy Surrender: The act of closing a life insurance policy before its maturity date
Lock-in Period: Minimum duration during which a policy cannot be freely surrendered without restrictions
The life insurance surrender value is the amount you receive when you close your policy before maturity. It is usually a percentage of the premiums paid (excluding taxes and rider premiums), after deducting applicable charges. It may be calculated as Guaranteed Surrender Value (GSV) or Special Surrender Value (SSV), depending on policy terms.
The surrender meaning in insurance refers to voluntarily terminating your policy before maturity. When you opt for policy surrender, your life cover ends, future premiums stop, and you may receive a surrender value as per eligibility.
A pure term plan generally has no surrender value. However, certain variants like Return of Premium (ROP) or single-premium term plans may offer a partial payout, subject to policy conditions.
To surrender a life insurance policy, complete the insurer’s surrender form, submit the required KYC and bank details, and provide the original policy document. After verification, the eligible amount is credited to your account within the insurer’s processing timeline.
Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.
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