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What Is Surrender Value? How To Calculate Surrender Value?

Published On Aug 13, 2021, Updated On Aug 28, 2023

We all know that life insurance, indeed, is a long-term commitment. Needless to say, it is not there are times when the unfortunate might come in the way. In those unfortunate times, you might have to consider surrendering your policy. 

When you cancel your insurance policy before it matures, the insurance provider will give you the surrender value. In general, once three policy years have passed, the majority of conventional insurance policies can be relinquished for cash. That indicates that the policy accumulates surrender value after the initial three years have passed.

In the case of conventional policies, the greater of the assured surrender value or unique surrender value will be provided when you surrender the policy after three years.

What Happens When You Surrender a Policy?

Insurance companies take a surrender fee from that acceptable amount as a result of the mid-term termination. It differs from insurance company to insurance company. The insurance pamphlet you receive when buying it might also inform you of the surrender fee.

One can cancel plans like ULIPs, endowments, and other investment and insurance products. It should be remembered that cancelling term plans with no maturity advantages would result in a policy lapse.

Following are some of the things that happen when you surrender a policy:

  • The insurer gets paid the surrendered amount.
  • With the surrender, the coverage stops right there.
  • Once surrendered, you do not have the option to revive the policy again in the future.
  • The policy's benefits stop working in their entirety.

What Is the Financial Effect of Claiming Investment Surrender Value?

Compound interest is used to raise a life insurance policy's profitability or maturity value. Because of the influence of compounding, you profit the most when you protect your investment and hold it until the conclusion of the policy term.

On the other hand, it doesn't earn any interest if you make a claim for the surrender value or remove it before the deadline. Your insurance provider will reimburse you for all of your savings or the value of your pooled funds. Whatever interest you have in it, you'll obtain. You must also consider the surrender fee that the insurance provider will deduct. Because of this, when you cancel your insurance, the opportunity gains on your investments are diminished.

Given what a surrender value is, you may assume that even if you have to cancel your life insurance policy in the middle, you will receive a set sum of money back. The insurance provider will reimburse you for the amount placed aside for savings plus interest. However, this feature is only accessible for life insurance plans that provide a maturity value.

Types of the surrender value

There are two types of surrender value called Guaranteed surrender value and a Special surrender value

1. Guaranteed Surrender Value

It is basically the sum of money that is insured to be payable by the insurance firm when you surrender the insurance policy before it completes maturity. The guaranteed surrender value gets evaluated depending on the value factor of the surrender in the policy document.

What is the value factor of surrender? Well, it is nothing but the percentage of the total premiums paid. It enhances with the number of policy years. The surrender value factor will go near the 100% of premiums paid when it closes down the maturity. It is why the insured surrender value gets evaluated as the total premium and the surrender value factor's multiplication.

2. Special Surrender Value

Typically, special surrender value exceeds guaranteed surrender value. But that is contingent upon the insurance provider. The total assured, premium payments, insurance duration, and bonuses all affect the special surrender value.

Generally, special surrender value is calculated, special surrender value = (Paid-up value + accrued bonuses) X surrender value factor
Where paid-up value = Basic sum assured X (Number of premiums paid/Number of premiums payable)

3. Surrender Value Calculator

Utilising the useful online tool known as the surrender value calculator, it is simple to determine the surrender value of a life insurance policy. On an insurance company's website, you may use the surrender value calculator. To rapidly determine the surrender value, you must submit some basic data. 

Your contact information, the plan's name, the number of premiums paid, the method used to pay the premiums, the total amount of the premium instalments, and the number of years the insurance has been in effect are all required. The surrender value calculator will determine your policy's surrender value as soon as you provide the necessary information.


As soon as you surrender, your risk cover benefit will cease. Calculation of surrender value considers premium paid and in certain case bonuses but only up to the extent of surrender value factor. Hence, you will partially lose out on whatever you have already invested. 

The yearly tax advantages that you get from paying a premium are lost to you. Consider giving up the insurance coverage only if the option makes financial sense because you forfeit several perks.


  • How should I utilise the calculator for LIC surrender value?

Any insurance company website has an easy-to-use LIC Surrender value calculator. A person just has to enter some basic information, like his name, phone number, plan type, term length, number of instalments, method of payment, required premium, and length of time the policy was in effect. The calculator gives him an estimate of the surrender value when he enters all the necessary information. 

This is the quickest and easiest method for figuring out the surrender value of any LIC. But you should also be aware that if you cancel your policy, you will no longer have any type of life insurance. Check each element, then, before applying the same.

  • Does the surrender value have to be taxed as income?

The sum of money you get as a surrender value prior to the policy's lock-in term will raise your yearly gross income. After applying the surrender value, you must pay your income tax in accordance with the tax bracket you are placed under.

  • How can I request an insurance company relinquish value?

If you wish to cancel your life insurance policy, you must inform the customer service team of your provider. Additionally, you can inquire about the surrender value you will receive and the associated fees. If you decide to move forward with your choice, you must submit the completed application form for policy surrender together with any other required paperwork.

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