What is Surrender Value in Insurance?

Last updated:
What is Surrender Value in Insurance?

A life insurance policyholder who cancels their policy before it matures or before they pass away will receive a cash surrender value. Most permanent life insurance policies, including whole life and universal life, have this cash value as their savings component. It is also called policyholder's equity. Before paying the cash value, the insurance company can deduct an amount known as a surrender charge.

What is the Surrender Value In Life Insurance? 

As you pay premiums, some permanent life insurance policies increase in value. You could withdraw this money while you're still living. The insurance company will provide a cheque for cash value if you surrender your life insurance policy. In a whole-life policy, you are guaranteed an increase in cash value. However, the savings component of a whole life insurance policy yields very little return in the early years compared to the premiums paid. But as time passes, your cash surrender value rises as you accumulate more cash value. You get your money back tax-free when you renounce insurance coverage. You owe income tax on your earnings if the amount you get exceeds the total premiums you paid.

When can the LIC Policy be Surrender? 

The LIC offers its policyholders the option to surrender their policy, although some restrictions and requirements exist. The policyholder is not allowed to give up the coverage at any moment. Generally, depending on the type of LIC insurance plan and the term of premium payments, they can surrender the policy after a minimum of two or three years of obtaining it. When can one give up the LIC policy? Let's find out:

Single-Premium Plans

In this plan, the policy can be resigned after the second year of purchase if the policyholder pays the premium in full. In the first year, the policyholder must keep the policy.

Regular and Limited Premium Plans

In both plans, the policy's term is usually considered. For example, the policy term is: If you're under ten, you have two years to surrender. The minimum duration is three years after more than ten years.

How much do you get while surrendering an LIC Policy? 

AspectGuaranteed Surrender ValueSpecial Surrender Value
DefinitionUpon insurance surrender, the policyholder is guaranteed to receive a minimal amount.But here, the value is calculated using a surrender value factor and is dependent on the total amount assured and the total amount of premiums paid.
CalculationNo surrender value is payable if the policyholder surrenders in the first year; however, in the second year,  30% of the premium is paid, deducting the survival benefits, 35% in the third year, and 90% of all premiums paid are payable; and in the case of policy surrender in the two years of the policy.The calculation is more complex and can be subject to change based on the insurance company’s discretion.
Payment:The Guaranteed Surrender Value is paid out as defined in the policy terms.Normally, the Special Surrender Value will be paid out seven days following the surrender request's receipt.

Process of Surrendering an LIC Policy 

1. Contact LIC Branch- Contact the nearest LIC branch or your insurance agent.

2. Collect Necessary Documents- Gather the original policy document and a filled surrender form, which can be obtained from the LIC branch or website.

3. Identity Verification- Carry a valid photo ID proof ( such as an Aadhar card, passport, etc.) for verification.

4. Policy Details- Provide all the policy details, such as the policy number, commencement date, and policy type.

5. Submit Surrender Form- Submit the filled surrender form and the original policy document.

6. Bank Account Details- Furnish bank account details for the surrender value to be credited.

7. Wait for Processing- The surrender request will be processed and may take some time.

8. Receive Surrender Value- The surrender value will be credited to the provided bank account once processed.

9. Policy Termination- The policy will be terminated, and you will no longer be entitled to the benefits.

10. Keep Acknowledgment- Retain the acknowledgment receipt for future reference.

What Happens Once LIC Policy Gets Surrendered?

It is not advisable to surrender the policy before its maturity time since, as was previously said, the surrender value paid is rather small compared to the policyholder's entire premium payment. You won't be in the winning position by giving up the LIC policy. When the policy is turned in, the following occurs:

  • With immediate effect, the policy's coverage ends.
  • The policy cannot be restored in the future.
  • Not all of the policy's benefits will be applicable.
  • The surrender value is paid to the policyholder according to how long they kept the LIC policy. 

What Else Can Be Done If Not Surrendering LIC Policy? 

When someone surrenders the policy for any reason, he/she loses access to the policy's returns, coverage, and benefits, and the compensated surrender value of the policy is also quite low. In this case, however, the policyholder can change their LIC policy to a paid-up policy, which permits them to stop paying premiums. The best thing about this choice is that it pauses premium payments while allowing you to continue using the coverage until maturity or the policyholder's death.

Only policyholders who have chosen regular or limited premium payment arrangements are eligible for this option. The policyholder is not entitled to receive future benefits of the policy because its paid-up value reduces its benefits. Nonetheless, the bonuses obtained until the policy's conversion to a paid-up one are included in the policy's paid-up value.

Let's examine the formula for the LIC surrender value calculator:

Paid-up value = {(Number of premiums paid / Number of premiums payable) * Sum Assured} + Accrued Bonus (if any).

Understanding SBI Life Insurance Surrender Value 

Understanding the surrender value of an SBI Life Insurance policy is crucial for policyholders considering premature termination. Calculating the surrender value for a single premium policy in SBI involves a formula: 75% of the outstanding term to maturity divided by the total term. 

Additionally, the calculation entails the average of the effective sum assured at surrender and maturity for increasing term assurance. While policyholders can surrender their SBI Life Insurance policy at any time, it's important to note that surrendering early may result in a reduced payout. To make an informed decision, individuals are advised to consult with their financial advisor or the insurance company to assess the potential implications and explore alternatives before finalizing their choice.


Indmoney strongly recommends against surrendering your LIC policy unless you are facing an extreme financial emergency. Surrendering means not only losing the limited value of the policy but also forfeiting all coverage and benefits associated with it. However, if you are in a dire financial situation and must surrender your policy, Indmoney has a comprehensive guide covering everything you need to know about the surrender process. Stay informed and follow Indmoney for more easy-to-understand insights on insurance and finance.