When Is The Right Time To Surrender Your Insurance Policy?

Jul 15, 2018 | 1 year ago | Read Time: 3 minutes | By iKnowledge Team

Insurance Policy

The premium amount that is chargeable within a life insurance policy depends on one’s health. Before surrendering a policy, one must keep in mind that the new policy may charge higher premiums if one’s health has deteriorated over time.

On the contrary, when you surrender your insurance policy early, the insurer and the agents have to bear the loss. That is because life insurance contracts are long-term contracts and the longer you keep paying the premium, the better the benefits.

Reasons for surrendering your existing policy may vary.  A policy holder shopping for better deals can get a better premium and cheaper options in the market rather than waiting around to claim their policy bonus. People often surrender their policy with the prospects of higher coverage options available. Another option is that the policy holder’s financial condition has changed and he or she can no longer afford to pay premiums.

What is Surrender Value?

When you decide to exit the insurance policy before maturity, you are granted a sum of money, wherein this sum is called Surrender Value. Since early termination of policies attracts penalties, the amount of money you receive is a part of the entire premium you have paid till cancellation.

What kind of policies have a Surrender Value?

Surrender Value is a subjective concept and is applicable to those insurance policies which have saving options included into them. According to Dr P Nandagopal, Founder of Insurance Inbox, “Pure risk protection policies (such as term, health, property, casualty and liability cover) will have no surrender values. Your premium value paid is what is used as your risk cover. Such risk cover endowments, money back, retirement etc. act as maturity benefits. These benefits can be uncashed partly before the due date of the policy”.

How is Surrender Value calculated?

A life insurance policy, if surrendered before its lock-in period, does not include any surrender value. To have a surrender value, the policy should survive the lock-in period, which varies according to insurance providers.  It is usually calculated as the current accumulated savings amount deducted with administrative and acquisition costs, if any.

Special surrender value = (paid up value + bonus) *surrender value factor.

New Surrender Value Norms

As per the new norms by IRDA For instance, “If the Premium Paying Term (PPT) of a policy is 10 years or more, it will acquire a guaranteed surrender value if all premiums have been paid for at least 3 consecutive years. However, in case the PPT is less than 10 years, the policy shall acquire a guaranteed surrender value if premium is paid for at least 2 consecutive years”.

Before buying any policy or switching policies, it is important to do all the ground work in order to find the most suitable policy for your needs. When you are equipped with the right tools such as the human life value calculator to measure the elements related to an insurance policy, you can ensure that you do not have to surrender it later.

Functioning of a human life value calculator:

Find out how much your family would need to continue leading the life that you have created for them by this example.

Mr. Khanna is 30 years old and has planned to retire by the age of 60 years. His current monthly expense is Rs 40,000. Savings and Investment is Rs 50,000. He is entitled to a loan to settle of Rs 1,500,000. Currently he is covered by a life insurance policy of Rs 1,00,0000.  He would need Rs 16,450,000 for his future goals. Hence, in this way you will need an additional life cover of 1.15 Cr. to ensure that your family can continue to lead a pleasant, happy life in the future.

Surrendering your life insurance policy is an important decision. Since having a life insurance is necessary for your financial security, ensure you take all the necessary precautions before deciding to surrender it. Gauging all the possible outcomes, make an informed decision.

Advt. No.: IA/Jul 2018/4173

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