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Life Insurance 898 views April 28, 2021
Life insurance provides financial protection to your loved ones. But due to unfortunate incidents, some may have to terminate the policy before its maturity. However, you could get a surrender value, subject to a spotless premium payment record for at least 2-3 years, on doing so. On such mid-term cancellations, a surrender charge will be reduced from the payable amount. This charge will, however, vary from policy to policy. If you terminate a life insurance policy after five years, the insurer will not levy any surrender charges as per the recent guidelines of the Insurance Regulatory and Development Authority of India (IRDAI). Read this page further and know the surrender value and its calculation.
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There are two types of surrender value in a Life Insurance Policy –
SSV = (Original Sum assured x (No. of paid premiums/No. of payable premiums) + total bonus received) x surrender value factor
The surrender value factor is the percentage of paid-up value plus bonus. In the first three policy years, this factor is zero and it starts increasing from the third policy year. The surrender value factor varies from insurer to insurer and depends on factors like – type of policy, time to maturity, completed policy years, etc.
Suppose you have a life insurance policy with an annual premium of INR 8,000 and you surrender the policy after 3 years, the minimum surrender value you can get is 30% of 2 years premium, which is INR 4,800. This is the guaranteed surrender value that you’ll receive.
Now, let’s calculate the special surrender value by taking an annual premium of INR 30,000 for a sum insured of INR 6 Lakh. Suppose you stop paying premium after 4 years, and the accumulated bonus is INR 60,000, the special surrender value will be (30/100) x (6,00,000 x (4/20) + 60,000) = INR 54,000.
You can borrow a loan against your life insurance plan up to 90% of the surrender value. The loan amount and interest rate may vary from one insurer to another. However, the interest rate would be lower compared to unsecured loans. This benefit is available to you under all types of life insurance plans, except term plans.