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Guaranteed Surrender Value

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Definition:

The guaranteed surrender value is the guaranteed amount that the policyholder will receive on voluntary termination of the policy.

Description:

At times, when an insured feels the sudden requirement of the money, the insured has the option to surrender his life insurance policy. Surrendering the policy before maturity, the insurance company will offer a surrender value.

A guaranteed surrender value is calculated as the total premiums paid which is multiplied by the surrender value factor. This surrender value is mentioned in the policy and is often paid after the completion of the 3 years of policy.

The insurance company will pay a surrender value of 30% of the premium paid towards the life insurance, excluding the premium paid in the first year. It will exclude the additional premium paid for optional covers. Surrendering the policy before maturity attracts a penalty known as surrender charges. The surrender value is calculated even after adjusting the surrender charges.

Example:

Ritika purchased a term plan for a policy term of 15 years. The premium under the policy was ₹7500/- annually. Ritika paid the premium for 4 years and then she thought of surrendering the policy. Till four years total premium paid by Ritika was ₹30,000/-. Now she will get a surrender value [30% of (₹30,000 - ₹7500 = ₹22,500) -surrender charges ₹2,000/-]. The total surrender value will be ₹4,750/-.

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