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Surrendering Life Insurance Policy in India

Submitted by admin on November 25th, 2024

Surrendering a Life Insurance Policy in India: What You Should Know Have you ever come across a situation that put you in a financial mess and asked yourself whether your life insurance policy was an exit door to quick liquidity? Or maybe you realize that the policy that made much sense earlier no longer aligns with your financial goals?

Surrendering an Indian life insurance policy is somehow the strategy to get life insurance control in your hands once again. It’s all not that simple, but yes, it is possible to get some money back.

In this blog, we shall discover the subtleties involved in surrendering different varieties of life insurance offering different premium payment options – that is, pay regular, pay single, and pay limited. We will also mention policies that cannot be surrendered and identify which documents you would require in the process.

Let’s embark on this journey to discover the way towards financial flexibility and freedom.

Types of Policies According to Premium Payment Options and Their Surrender Processes

1. Level Pay Policies

Level pay policies, also known as old life insurance policies, insist the policyholder pay premiums either monthly, quarterly, or annually, throughout the entire term of the policy.

Calculation of Surrender Value:

In general, the surrender value is calculated with respect to the number of premiums paid and for what period the policy is in force. It’s also worth noting that an early surrender may attract a lower surrender value. The Surrender value factors, indicated as SVF, ranges between 30% to 90%. This depends on the year at which the policy is surrendered. For example, if the policy falls within a range of years between 4th and 7th year, it then takes a value of around 50% with interpolation done either by 1% or 2% each year. For the last four years of the policy reaching maturity, the SVF remains steady at about 90%.

Administration Time:

The insurer will process the claim and pay out the surrender value, which takes usually several weeks.

2. Single Pay Policies

Single pay policies are characterized by a single premium payment during policy inception. The coverage commences immediately and covers a term as specified.

Higher Surrender Value:

The surrender value is normally more than the normal pay policies because a lump sum was paid upfront. The surrender value factor (SVF) runs between 75% in the second year and has risen to 90% after four years.

Streamlined Process:

The process is streamlined, and the surrender value is disbursed upon the insurer processing the request.

3. Limited Pay Policies

Limited pay policies pay premiums for a limited period, whereas the cover continues for a longer duration.

Surrender Value Dependency:

The surrender value is dependent on the number of premium paid and the time elapsed since policy commencement, as it applies to regular pay. The only difference here is that the premium paying term and policy tenure are different. Normally the premium paying term is lesser than the policy term.

Types of Surrender Values

1. Guaranteed Surrender Value (GSV)

A proportionate basis of all the premium paid, provided in the contract of the policy. Therefore, this basis is a computation for premiums.

2. Special Surrender Value (SSV)

This is calculated on the basis of sum assured of the policy, bonuses accrued thereon and the special formula of the insurer.