In summary

You can receive a surrender value when you discontinue an eligible life insurance policy before maturity, but the amount depends on the policy and the time it has remained in force.

• Guaranteed surrender value is calculated using the applicable surrender value factor and eligible premiums paid.
• Special surrender value can consider the paid up benefits and accrued or vested benefits under the policy.
• Standard term insurance generally does not build a surrender value, while some term products with a return of premium feature may provide surrender benefits under their policy terms.

Surrendering ends the policy and its insurance cover. Before taking this step, check the surrender value shown in your policy documents and compare it with the benefits you would retain by continuing the policy.

The amount you receive may be lower than the total premiums you have paid. Surrendering also ends the policy, so the insurance cover and future policy benefits stop according to the surrender terms.

For eligible policies, the surrender value may be shown as a Guaranteed Surrender Value or Special Surrender Value. The Insurance Regulatory and Development Authority of India (IRDAI) requires policy year wise GSV, SSV and surrender values payable to be stated in the benefit illustration.

How is guaranteed surrender value calculated?

For eligible non linked policies other than single premium products, the minimum GSV depends on when you surrender the policy:

The policy must have received premiums for at least two consecutive years to acquire the guaranteed surrender value. The surrender value after the seventh year must follow a smooth progression towards at least 90% as the policy approaches maturity. Insurers can provide higher values than these minimums.

Example: If eligible premiums paid are Rs. 2 lakh and the policy is surrendered in the third year, the minimum GSV based on the 35% level is Rs. 70,000, before accounting for applicable survival benefits and policy specific provisions.

How is special surrender value calculated?

SSV is based on the benefits that have built up under the policy. It considers:

• Paid up sum assured
• Paid up future benefits, such as income benefits
• Accrued or vested benefits
• Survival benefits already paid

The applicable SSV is reviewed annually and uses product specific factors.

Which surrender value will you receive?

Your benefit illustration shows the GSV, SSV and surrender value payable for each policy year. This lets you check the amount applicable to your policy before deciding whether to surrender it.

The actual amount can differ from the minimum GSV because insurers may offer higher surrender values and the SSV depends on the policy's benefits and applicable factors.

1. Guaranteed Surrender Value

GSV is the guaranteed amount payable when an eligible policy is surrendered, based on the applicable GSV factors.

• The factor can vary by policy year and policy terms.
• The calculation uses the eligible premiums and other provisions specified in the policy.
• The exact GSV differs across life insurance policies, so the policy document is the correct source for the amount payable.

2. Special Surrender Value

SSV is calculated using the policy's paid up benefits and applicable accrued or vested benefits.

It can include:

• Paid up sum assured
• Paid up future benefits, where applicable
• Accrued or vested benefits
• Survival benefits already paid

For eligible policies, SSV becomes payable after the first policy year when one full year premium has been received. Limited premium payment policies with a premium payment term of less than 5 years and single premium policies have separate provisions. The applicable SSV is reviewed annually under the IRDAI framework.

3. Cash surrender value

Cash surrender value is the amount you actually receive when you surrender an eligible life insurance policy.

It depends on the applicable GSV or SSV and the terms of your policy. It should not be assumed to equal the total premiums paid.

Your policy document and benefit illustration should be checked for the surrender amount applicable to your policy year. IRDAI's Master Circular on Life Insurance Products also requires the relevant surrender values to be specified under the product provisions.

1. Policy duration:

The policy year can affect the surrender value factor and the amount payable.

• Some policies require premiums to be paid for a specified period before a surrender value becomes available.
• For example, LIC states that certain regular premium policies provide a GSV after 3 policy years and payment of 3 full years' premiums. The stated GSV is 30% of eligible premiums, after specified exclusions. 
• This 3 year and 30% figure applies to those specified LIC policy conditions, not to every life insurance policy.

2. Type of life insurance policy:

The type of policy determines whether it can have a surrender value and how that value is calculated.

• Savings and participating policies: May provide GSV, SSV and other surrender benefits according to their terms.
• Participating policies: Accrued or vested bonuses can form part of the surrender calculation.
• Pure term insurance: Generally does not build a surrender value because it is designed to provide life cover rather than a cash value.
• Return of premium term insurance: Some products can provide surrender benefits under their specific policy terms.

3. Eligible premiums paid:

The eligible premiums paid form part of the surrender value calculation, but the amount you receive is not automatically equal to the premiums paid.

The applicable surrender value factor can vary according to factors such as:

• Premium size
• Premium paying term
• Policy term
• Policy year when you surrender the policy

IRDAI states that insurers may offer GSVs above the specified minimum, with the applicable values varying according to these factors and other relevant conditions.

4. Accrued or vested benefits:

Accrued or vested benefits can increase the surrender value of eligible policies.

For SSV, IRDAI requires the calculation to consider:

• Paid up sum assured
• Paid up future benefits, where applicable
• Accrued or vested benefits
• Survival benefits already paid

The exact treatment depends on the policy terms and applicable surrender provisions.

5. Surrender value factors:

The applicable GSV or SSV factor has a direct effect on the amount payable.

For example, surrender value factors can change between policy years rather than remaining at one fixed percentage throughout the policy. LIC's published policy conditions show a 30% GSV for certain policies after the required 3 year premium period, while individual product documents can specify different factors.

6. Paid up benefits:

If a policy has acquired paid up benefits, these can affect the SSV calculation.

Under IRDAI's framework, SSV considers the paid up sum assured and paid up future benefits, along with applicable accrued or vested benefits. This means the surrender amount cannot be calculated correctly using premiums alone.

7. Insurance cover after surrender:

Surrendering the policy ends the policy and its insurance cover according to the surrender provisions.

Before surrendering, compare the amount payable with the life cover and other benefits you would give up. If your family still depends on the policy's protection, losing that cover can affect their financial security.

Pure term insurance generally does not provide a surrender value because it is designed to provide life cover for a specified period rather than build a cash value. However, some term insurance products with a return of premium feature can have surrender benefits, depending on their policy terms.

Before surrendering, compare the surrender value shown in your policy documents with the benefits you would retain by continuing the policy. The surrender amount depends on the policy terms, policy year, premiums paid and applicable surrender value factors. IRDAI requires the benefit illustration to show policy year wise Guaranteed Surrender Value, Special Surrender Value and surrender values payable.

Surrendering a life insurance policy ends the policy and its insurance cover according to the policy terms. If your need for funds is temporary, check whether your policy offers another option, such as a policy loan, before ending the cover. Before you decide, check the surrender value, remaining policy benefits and impact on your life cover together. This gives you a clearer basis for deciding whether continuing or surrendering the policy is more suitable.

Before choosing an alternative, compare the amount you need with the surrender value in insurance and the benefits you would retain. For a cash surrender value of life insurance, check your policy documents because the amount and available alternatives depend on the specific product terms.

• Surrender value: Check the Guaranteed Surrender Value or Special Surrender Value stated in your policy documents. IRDAI’s life insurance product rules require applicable surrender values to be set out for the policy. 
• Life cover: Surrendering ends the policy and the associated insurance cover. If your family still depends on this cover, replacing it later may involve a new premium based on your age and health.
• Future benefits: Continuing the policy may preserve maturity benefits, bonuses or other benefits available under its terms.
• Need for funds: If you need money temporarily, check whether your policy allows a loan against the policy before surrendering. LIC, for example, provides loans on eligible policies based on the policy’s surrender value and applicable conditions. 
• Policy type: Surrender rules differ between traditional savings policies, ULIPs and other life insurance products. A standard term insurance policy generally does not build a surrender value, although some products with a return of premium feature may have surrender provisions.
• A practical approach: If you need funds only temporarily, first check alternatives such as a policy loan or other available policy options. If you no longer need the cover, compare the surrender amount with the benefits you would give up before making the decision.

Surrendering a life insurance policy can provide access to money before maturity, but it also ends the policy and its future benefits. Before taking the surrender value, check the Guaranteed Surrender Value, Special Surrender Value and other benefits shown in your policy documents.

If you need funds temporarily, compare options such as a policy loan, reduced paid up benefits or permitted partial withdrawals before surrendering. If you no longer need the policy, compare the amount payable on surrender with the benefits you would give up.

Understanding the surrender value in insurance and the cash surrender value of life insurance can help you make the decision based on your policy terms rather than only the amount available today.