Aditya Birla Sun Life Insurance Company Limited

Surrender Period

★

4.5

Rated by 1 readers

Definition:

The surrender period is the duration of time counted from the inception of the policy during which the investor does not have the access to withdraw funds from their annuity. Withdrawing before the surrender period may attract a penalty.

Description:

Life insurance policies do not always fetch the benefits or satisfy the policyholders’ needs. A policyholder takes the decision to surrender the annuity policy in case of incapability to bear the cost of the premium, or unfavourable returns, or to access the surrender value in a financial emergency.

But the policyholder can not cancel the policy by surrendering at any given time, because life insurance policies are typically long-term contracts. They have to wait till the surrender period is over. The surrender period varies from policy to policy. Generally, this period is a few years after the inception of the policy.

Once the surrender period is over, the policyholder is free to surrender partially or 100% of the policy. That means they can access the asset value. If the policyholder surrenders the policy before the surrender period is over, a penalty known as surrender fees is levied. A surrender charge is a percentage of the amount withdrawn.

Example:

Ayush purchased an annuity plan to secure his future retirement requirements. After paying the premium for 4 years, Ayush realised that the return rates would not match the inflation rates under the policy. He analysed that the returns will not be sufficient to meet his financial goals in the rising inflation.

After a complete evaluation, Ayush decided to surrender the policy, but the surrender period was not over yet. However, he opted to surrender it in the surrender period and pay the penalty. The insurance company accepted his request and deducted the surrender fees from the surrender value. Then Ayush invested the surrender value in another financial product that suits his requirement in a better way