Ria, a banker, bought an endowment plan two years ago with the aim of accumulating enough funds to buy an apartment. Over the last two years, her liabilities have grown to a point where she can’t afford the premiums, and also, she no longer feels the need for an apartment. Now that paying for the endowment plan seems pointless, she decides to discontinue it.

We call this discontinuation of the policy - "Policy Surrender". Now, will she get any returns for the premiums she has already paid? What about the policy benefits?

In the previous chapters, we discussed the various characteristics and features of an endowment plan, and how you can go about buying one. Now, we will examine what happens when you wish to surrender a policy and how the benefits are impacted by this.

What does surrendering an Endowment Plan mean?

Withdrawing or discontinuing the Endowment policy prior to its maturity date is called surrendering the policy.

If you wish to terminate the policy, you must notify the insurer right away. Please bear in mind that if you stop paying your premiums and don’t inform your insurer, your policy will automatically turn into a reduced paid-up policy with reduced benefits.

Reasons for surrendering a polic

There may be multiple reasons for which you may want to surrender your policy.

You can discontinue your Endowment plan if -

• You are experiencing financial hardship and are unable to pay the premiums.
• You have found a better policy to invest in. It perhaps offers reasonable returns and benefits than the one you own now.
• The endowment plan is no longer needed for the intended goal for which it was purchased.

What is a Surrender Value?

If you pay your annual premiums and continue the policy for a certain period, your policy shall acquire a certain value known as Surrender Value. Basically, it is the amount the insurer will give you if you choose to surrender your policy after a particular time frame.

You need to pay all the due premiums for at least 2 years for the policy to gain a surrender value.

Types of Surrender Value

There are two types of surrender values -

Guaranteed Surrender Value
It is the percentage of total premiums paid. This percentage may vary across products and insurers.

The following factors are excluded from the Guaranteed Surrender Value:

• Any additional premiums paid for riders
• Any bonus that the insurer may have given you.

However, this may vary across products.

How do you calculate the Guaranteed Surrender Value?

You can calculate your Guaranteed Surrender Value using this formula -

GSV = (GSV Factor × Total Premiums Eligible For GSV) + (GSV Factor × Accrued Bonuses/Loyalty Additions/Guaranteed Additions (if any)

Let's look at an example to understand the concept better.

Harish buys a Participating Endowment plan with a sum assured of Rs. 25 Lakhs for a 20-year policy period. He selects the limited pay option, for which he needs to pay an annual premium of Rs. 1,00,000 for 10 years.

Harish purchased the Endowment plan to fund his wife Payal's higher studies in Canada, but now she is no longer interested in pursuing that anymore. So, in the 5th year, Harish decides to surrender the Endowment Plan.

Let’s assume that Harish's policy has a GSV factor of 20% for his sixth year and that he has accumulated a bonus of Rs. 20,000 so far under this policy.

GSV factor	20% (assumed)
Total premiums paid	Rs. 5,00,000 (5 x 1,00,000)
Total premiums eligible for GSV	Rs 5,00,000
Accrued bonuses	Rs. 20,000

The GSV for Harish’s plan will be calculated using the formula -
GSV = (GSV Factor × Total Premiums Eligible For GSV) + (GSV Factor × Accrued Bonuses (if any)

= (20% x 5,00,000) + (20% x 20,000) - (0)
= 1,00,000 + 4000
= Rs. 1,04,000

Thus, Harish will receive a Guaranteed Surrender Value of Rs. 1,04,000 under the Endowment Plan.

Special Surrender Value.

The Special Surrender Value is determined on the basis of several criteria. Insurance companies have the right to revise the Special Surrender Value from time to time with the IRDAI's prior approval.

The SSV depends on -

• Sum Assured
• Policy tenure
• Paid Premiums
• Investment returns
• Bonuses
• The market value of financial assets like stocks, etc.
• Demographic and other factors like age, etc.

How do you calculate Special Surrender Value?

You can calculate your Special Surrender Value using this formula -

SSV = [ Sum Assured x (No. of Premiums paid / No. Of Premium payable) + Total bonuses received ] x Special Surrender Value Factor

Now let's recall Harish's example to understand how much Special Surrender Value he will receive from his plan. Consider the surrender value factor for his policy at the time of surrender to be 20%.

SSV factor	20% (assumed)
Sum assured	Rs. 25,00,000
Total no. of premiums paid	5
Total no. of premiums payable	10
Accrued bonuses	Rs. 20,000

**The SSV for Harish’s plan will be calculated using the formula -**

SSV = [Sum Assured x (No. of Premiums paid/No. Of Premium payable) + Total bonuses received ] x Special Surrender Value Factor

= [25,00,000 x (5/10) + 20,000] x 20%
= [25,00,000 x 0.5 + 20,000] x 20%
= [12,50,000 + 20,000] x 20%
= 12,70,000 x 20%
= Rs. 2,54,000

Thus, Harish shall receive a Special Surrender Value of Rs. 2,54,000 under his Endowment Plan.

A few things to remember

• If you want to surrender your Endowment Plan, you will have to notify your insurer, following which you will receive the Surrender Value.
• You will be required to disclose the reason for surrendering the policy, and produce the relevant documents to the insurer.
• After the surrender value is paid to you, the policy shall terminate.

What are the steps involved in surrendering an endowment plan?

• If you've purchased the Endowment through a financial advisor or bank, ask them about the GSV or SSV you are entitled to receive if you surrender the policy during the policy term.
• If you wish to surrender the policy, contact the insurance company or your financial advisor and inform them.
• The next step is to get the surrender form from the insurer's branch office, or you can ask your insurer to email it. It is also possible to download it from their website (if available).
• Fill out the surrender form carefully and keep a copy of the form for future reference.
• The filled-out form should be submitted to the insurance company, along with other required documents.

Documents to be submitted include:

• Original policy documents
• Cancelled cheque with your name on it
• If the cancelled check doesn't have a pre-printed name and the account number or a new account is specified on the check, a passbook copy or bank statement with a pre-printed name and account number is needed.
• ID proof (PAN Card, Aadhaar Card, Passport, Driving Licence, Voter ID)
• Latest contact details
• NRE (An NRE account is a local bank account opened in India by an NRI to save foreign earnings) bank statement showing any premiums paid from the NRE account
• You can submit the form and documents to the insurer's office in person or ask your financial advisor to submit them to the insurer on your behalf.
• The submitted documents shall be verified by the authorities. After successful verification, the surrender amount will be deposited into your bank account.

Summing up!

Over time, your income or expenses may vary, or your financial obligations may grow, making it harder to pay your insurance premiums. Sometimes, you may even find that the policy does not generate a considerable return on your investment. In these circumstances, you can surrender your policy. Nevertheless, it is essential to consider all the factors involved before taking such a step. Surrender the plan only if it proves to be beneficial and lucrative for your savings. Make sure you inform your insurer about your decision to do so.

What happens if you don’t inform your insurer or don’t want to receive the surrender value? Let’s see - in the next article!