Insurance Policy Surrender: If you are surrendering your policy for any reason, make sure that the alternative investment you make will help you cover the loss incurred in surrendering the policy. Insurance experts agree that surrendering a life insurance policy before maturity is not a good decision as the surrender value is always proportionately less. You should fulfill your financial needs without surrendering by using the second option. Some insurance policies also allow you to reduce your premium rates.
surrender value
When the policyholder voluntarily terminates the policy before maturity, then the amount paid by the insurance company is called Surrender Value. Only policies that come with investment option have surrender value. A life cover only product like term life insurance does not have a surrender value.
Calculation of surrender value
Calculating the surrender value depends on your insurance plan. If you have an endowment policy, you will be paid either a guaranteed payment or a special surrender value. The guaranteed value is mentioned in the policy documents and is usually paid after completion of two-three years.
It is generally 30% of the premium paid excluding the first year premium. The type and plan of insurance, age of the insurance policy, bonus and policy term etc. are used to calculate the surrender value.
ULIP
If you surrender the policy within five years, the insurance company deducts Rs 1000 to Rs 6,000 from your investment. You should remember that you will not get the Surrender Value immediately, but only after the completion of 5 years. On surrender, your money is taken out of your policy and put in a discontinuance fund, and you get a return of 3-4% on that fund till the completion of five years of the policy.
free-look-period
While taking the policy, the insurance company gives you a free-look period of 15 days, that is, in these 15 days, you can decide whether to keep the policy or not, and if you do not like the policy, you can return it. You can get back the premium paid by returning your policy during this period. After the end of the free-look-period, the policyholder has to pay premiums for at least 2-5 years to get the surrender value.
lock-in period
If you have not paid the premium for the lock-in period of 3 or 5 years then you can get the Surrender Value. However, in some policies surrender value before the end of the lock-in period may result in surrender value, but the insurer pays the surrender value only after the lock-in period.
other options
If you want to surrender the policy for financial needs, then before doing so, you should know about other options. In many life insurance policies, you get the option of partial withdrawal and loan facilities etc. under the policy surrender rule. You can meet your financial needs with these facilities without having to surrender the policy.
