surrender value in insurance
By Okbima 08 May 2024 11

Surrender Value In Insurance: Types & How You Can Use Effectively?


Surrender value in insurance is the amount of money that an insurance policyholder will receive if they terminate their policy before its maturity. There are different types of surrender values, such as guaranteed and non-guaranteed surrender values, which can vary depending on the terms of the policy. Let’s understand which life insurance policies offer surrender value & should you surrender your policy before maturity or not.


What Is Surrender Value In Insurance?

Surrender value is your cash back if you cancel your life insurance policy early. It applies to policies with a cash value, like whole life & not term life. The amount depends on your paid premiums, policy years, and any accumulated cash. There might be fees for early cancellation. While it offers some flexibility, you'll get less money back than the total premiums paid, especially early on. So, surrendering a policy can mean a financial loss.


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Types Of Surrender Value In Insurance

There are two main types of surrender value in life insurance which include Guaranteed Surrender Value & Special Surrender Value.

  • Guaranteed Surrender Value: This is a pre-determined amount, mentioned in the policy documents, that the insurer is obligated to pay if you surrender the policy after a specific period (normally after 3 years). It's a straightforward calculation based on the total premiums paid minus premiums for the first year.

  • Special Surrender Value: This amount is more flexible and depends on many factors like the total sum assured (death benefit), total premiums paid,  policy term, and any declared bonuses. It applies to situations where a policy becomes "paid-up" due to missed premiums. In such cases, the special surrender value considers the reduced sum assured and offers a higher payout than the guaranteed value.


Do All Life Insurance Policies Offer Surrender Value?

No, not all life insurance policies offer surrender value. It depends on the type of life insurance like whole life insurance, variable life insurance, etc.

  • Permanent life insurance policies (whole life, universal life, variable universal life): These policies have a cash value option that builds up over time. This cash value can be accessed through surrender, where you get a portion of it back.

  • Term life insurance: Term life insurance focuses solely on providing a death benefit payout if the insured dies within the policy term. It doesn't have a cash value component, so there's no surrender value to receive if you cancel the policy early.


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How To Use Surrender Value Effectively?

Surrender value can be helpful in some cases, but it's important to use it carefully to avoid losing money. Here are some tips for using surrender value effectively.

  • Pay Premiums During Financial Difficulties: If you're facing financial difficulties and can't afford your life insurance premiums, you can use the surrender value to cover some or all of the payments. This helps keep your policy active and avoid complete lapse.

  • Reduce Coverage Needs: If your life insurance needs have decreased (e.g., your mortgage is paid off), you might consider surrendering part of the policy value to reduce your coverage amount. This lowers your future premium payments while still maintaining some protection.

  • Fund Short-Term Goals: In some cases, the surrender value can be a source of funds for short-term goals. However, this should be a last resort as it reduces your long-term life insurance benefit.


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Should You Surrender Your Policy Before Maturity?

Surrendering your life insurance policy before maturity is generally not recommended due to many disadvantages such as financial loss, loss of coverage & tax implications.

  • Financial Loss: The surrender value you receive will be less than the total premiums you've paid, especially in the early years of the policy. If you take out the money from your account now, you will miss out on the opportunity for your savings to grow & your family won't receive the full payout when you pass away.

  • Loss of Coverage: You'll lose the life insurance protection your policy provides. This can leave your dependents financially vulnerable if you were to pass away unexpectedly.

  • Tax Implications: Depending on your policy and location, there might be tax penalties associated with accessing the surrender value.


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In conclusion, you need to know about surrender value in insurance so you can make good choices about their policies. There are two types of surrender value – guaranteed and non-guaranteed – which can change based on the policy rules. By understanding how surrender value works, you can make the most of your insurance or decide if you want to cancel your policy. If you have any query, you can contact “Our Experts”.

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