How to Calculate the Surrender Value of a Life Insurance Policy?

Nick Clair
How To Calculate The Surrender Value Of A Life Insurance Policy?

Life insurance policies are usually bought for a long time because they aim to protect a person’s and his family’s financial future. But sometimes, people think about giving up their life insurance policy or “surrendering” it.

Essentially, when you give up a life insurance policy you terminate the policy contract and surrender the protection that the insurance policy provided to you. A policyholder can give up their policy for many reasons. These include if the policy doesn’t cover enough or if the policyholder can’t pay the premium. When you give up a policy that is close to its end date, you can lose a lot of benefits. You also lose tax deduction benefits (the deduction varies in the old & new tax regime and is subject to change).

What does “Surrender Value” mean?

When you give up or “surrender” your life cover policy, the insurance company usually owes you a certain amount. When you give up your life insurance policy, the insurance company gives you back a certain amount of the premiums you paid every month. This payment check is called a “surrender value.”

How do you calculate the Surrender Value?

Policyholders who want to figure out the surrender value of their life insurance should know that it is very easy to do so.

With a useful cloud-based tool called a “surrender value calculator,” you can now figure out the exact surrender value in minutes. To get this information, all you have to do is give some basic information. This includes the length of the policy, the amount of the premium paid, how the premium was paid, how many years the policy has been in effect, the amount of the premium instalments, etc.

Once you give all this information, the online surrender value calculator can tell you how much your life insurance policy is worth.

When does a policy of life insurance get a “surrender value”?

In the following two situations, a life insurance policy will have a surrender value:

  1.  When the policy lasts for more than 10 years: In this case, the life insurance policy’s surrender value can be obtained by paying the premiums on time for at least three years consecutively.
  2. When the length of the policy is less than ten years: In this case, the life insurance policy has a surrender value if the premium has been paid on time for at least two years in a row.

How a life insurance policy’s surrender value works:

A life insurance policy usually has two types of surrender value: a special surrender value and a guaranteed surrender value. Read on to know more.

  1. Guaranteed surrender value

    Under this type, the insurance company is guaranteed to pay a fixed sum or amount if the policy is surrendered or dropped before the end of the maturity period.The surrender value determinant in the policy papers is used to figure out the guaranteed surrender value of a life insurance policy. Most of the time, this factor is the percentage of the premiums paid. In this case, the surrender value of a life insurance policy goes up as the number of years goes on.

    As the life insurance policy gets closer to its end date, the surrender value will get closer to 100% of the total premiums paid. In this case, the total amount of premiums paid is multiplied by the surrender value factor to figure out the guaranteed surrender value.

  2. Special surrender value

    This special surrender value is usually higher than the guaranteed surrender value of a life insurance policy. But this is entirely up to the insurance company. The exact surrender value depends on the coverage, the premiums paid by the policyholder, the length of the policy, and any bonuses.

    Usually, the formula for figuring out this special surrender value is: (Accrued bonuses + Paid-up value) x (Surrender value factor). The paid-up value is found by multiplying the basic sum assured by the number of premiums to be paid or already paid.

    In conclusion, giving up or surrendering your life insurance policy may not be a wise idea, especially when it’s close to maturity. You may not get back the full amount of premiums you paid. If you think your policy isn’t giving you enough money back, you can think about opting for a new policy that fits your financial goals. A life insurance premium calculator will help you determine a good fit for your needs.

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