Are you stuck with a life insurance policy that you want to surrender or discontinue? Surrendering a life insurance policy is a tough job as it often means a loss of a small amount of premium in many cases. You also have the option of making your policy paid up. What is surrender value and paid-up value of a life insurance policy and which one should you go for and when?

You must note that the below argument is valid only for policies which have an investment component built into them – such as endowment policies, money back policies, whole life policies, Unit Linked Insurance Plans (ULIPs) – but not term plans – term plans are pure vanilla risk covering insurance plans.

## Surrender value of a life insurance policy

As the name itself reveals, surrender value of a life insurance policy is the value you receive from the life insurance company when you surrender the policy before the maturity of the policy. Loosely defined, the word surrender can mean cancelling or terminating the policy or simply returning it to the insurance company before the tenure has been completed or before the policy matures.

You might have a number of reasons why you want to surrender a policy – beginning from your inability to pay the premium to realizing that you are at the short end of the stick as far as the product is concerned and that you should not have bought it in the first place.

The money so received at the time you discontinue the policy is called surrender value.

Needless to say, when you surrender, you do not have to pay any future premiums and your life insurance cover from the company stands terminated.

When you surrender, the insurance company has to give you some money in return as you paid some premiums each year – a part of this premium went towards providing risk and some part went into investments – it is this investment part, which would have grown in value, that will be returned to you after applying some surrender charges which varies from policy to policy. Apart from that, you might have been eligible for some bonus as well. Note that as far as the bonus is concerned, it is reduced by a factor called surrender value factor.

To understand this better, let us look at the formula by which insurance companies arrives at the money they give to you.

Surrender Value = [ {(Number of premiums paid / Number of premiums payable) * Sum Assured } + Accrued bonuses ] * Surrender value factor

If I want to explain with an example, let us say you have paid premium of Rs 14,000 each year for 3 years now for a policy with Sum Assured of Rs 2 lakhs which has a tenure of 15 years. You decide to terminate or surrender the policy.

Assume that you have accumulated a bonus of Rs 10,000.

The surrender value = [{(3/15)*2,00,000} + 10,000]*0.25

= Rs 12,500

If you had stuck with paying the premiums for 6 years, the value would have been Rs 22,500 – if you look at the above example, you will note that the more number of premiums you pay, more is the surrender value.

Note that there is a rough thumb-rule to get to this surrender value – insurance companies usually pay 30% of the first 3 years premium back to you, minus the first year premium.

It must be noted that the surrender value is given out only when the life insurance policy has been in existence for 3 years. So if you want to surrender after a year or two, you will get no money. The money is received from the insurance company only after 3 full premiums have been paid.

Another point to note is that the insurance regulator, IRDA has asked that there be no surrender charges if the policy is surrendered after 5 years.

## Paid-Up value of a life insurance policy

What if you want to stop paying the premiums for the policy but do not want to terminate the policy ? The insurance company provides you with an option where in they will let the policy continue to its maturity with no premium expectation from you – the caveat is that the sum assured that was in existence when the policy was taken will now be reduced substantially. This is done by making the policy paid-up.

So when you make a policy paid-up, it still is in force with a reduced sum assured and does not discontinue. The reduced sum assured is called the paid-up value of the policy.

Here is the formula for Paid-up :

Paid-Up Value = (Number of premiums paid / Total number of premiums payable) * Original sum assured

In the above example that we took, the policy has a paid-up value of Rs 10,000 after 3 years.

Once you make a life insurance policy paid-up, it does not qualify for any bonuses. Note that the paid-up value is the amount you will receive when the policy matures or the money the nominee receives if you were die.

If you re-look at the surrender value formula, you will realize that it can be re-written as

Surrender Value = [ Paid-Up Value + Accrued bonuses ] * Surrender value factor

The surrender value factor is zero for the first three years and keeps rising from third year onwards. It differs from company to company and depends on various factors.

**What option should you take ?**

Remember that if you surrender you will get the money now and in that case you can use it for some productive purposes. You can probably align that money for your long term goals and make it grow. The insurance cum investment policies will give you returns to the tune of 7% over a long period of time – that is what inflation is at so you are not going to make any money in the real sense.

If you make it paid-up, then you will get the money only after the tenure is over which might be too late in the day for you. With the inflation monster, that money might look a little for you by the time you get it as its purchasing power should have been lowered by then.

The decisions of which way to go is very very subjective so do not blindly make a decision – do your planning and depending on your own personal factors, take the right call with your advisor on what makes sense for you.

Ram says

Thanks for the information , when we contact the insurance company for surrendering the policy we won’t get the proper response

TheWealthWisher says

Can you elaborate further ? Have you tried this personally and what for and what issue did you face ?

Ram says

I called contact centre of LIC , I asked them what is the surrender value of my policy , They told you will be under loss if you surrender, I paid premium for 4 years,I asked them to calculate the surrender value, They become rude & told me to visit the branch

TheWealthWisher says

Oh, sorry to hear that friend.

Debmalya Chakraborty says

Hi,

Thanks for this info. Please let me ask some questions. I have bought an endowment policy from lic 2 years back and paid only two premiums. Actually it was bought by my parents for me but now I discover that I have nothing to do with this policy. Can I make leave this policy paid up? Should I pay 3 premiums to make it paid up?

Warm regards,

Debmalya

Vikas says

Please send mail to branch to get the required information. Also it is advisable to complete 5 years and then surrender the policy.

Sankar says

I was surprised when my advisor who asked me to take SBI life insurance policies 3 years back suddenly asked me to surrender them and put the money in something else from SBI. This would immediately put me in loss. The policies are SBI Life Unit plus III (1 Lakh/annum for 15 years) and unit plus III pension (50000/annum). 3 premiums have been paid already. I now want to stop these and go for MFs. I was wondering what is the best option, Surrendering or make it paid up by stopping premium payment? Thanks a lot in advance for your valuable suggestions.

SWATI WAGHMARE says

i have paid 3 months premium…now i have purchased a flat..i want to stop my policy of jeevan anand..as the amount of my policy is 1600 Rs/- per month..instead i would like to raise my emi and pay flat emi soon..to reduce my intrest rate on flat emi…what is the best option..should i continue paying insurance or stop or surrender..advice me..on my mail id

Vikram says

hi!!

I bought 3 endowment policies from LIC of India. paid 3 years premiums in full.now i have completed more than 3 yrs, i want to make all these policies paid-up.I visited LIC branch & asked them to make these policies paid-up. Surprisingly my LIC agent did not know about this option, so he took me to Developement Officer, he told me you stop paying future premiums so policy will automatically becomes paid-up. but I am not sure that this is the right procedure for paid-up, cause cover will discontinue in this case. pls sugget how to make policy paid-up, specifically in LIC case. my policied are Jeevan Tarang,Jeevan Anand,Limited Endowment plan(new Jeevan Shree)

Rakesh says

@Vikram,

You stop paying the premium the policy becomes paid-up. But you can give an application in writing about the same and take acknowledgement from LIC, that way you will have proof.

I did the same few years back.

Rakesh

Vikram says

thanx Rakesh!!!!!!

Kumar says

To make the policy paid up, do I need to go the branch where my policy is registered or else any location branch I can do it ?

Thanks and please let me know.

Rakesh.

kishor says

i taken policy from kotak insurance. one years full premimum paid. policy for three years only.rs.30000 premium i paid. after 3 years the return me obly 2440. they deducted 80% surrender charges. and service tax aslo.

what can i do. can you guide me.

kishlay kumar says

i have paid more then 2years in lic jevan saral policy,know i want to purchase a flat and unable to continue it,looking for some help from policy for flat emi.i paid rs.5000 per month.give some suggesstion.

sanjay zalkikar says

I have suffered a loss in this policy Agents of this sbi life misguides do not invest for sbi life

Lizny says

I took a jeevan tarang policy of Lic and i have completed three years. My sum assured is 500000, for 20 years. I was told that it was loss for long years, so i planned to surrender after 3 years, my premium is rs.2159. pls tell me surrender will loss of money which i paid rs.77724 , will i get atleast this money back.

wellwisher says

@lizny, though late… i hope u have not surrendered. Surrender only after 5 yrs.

ur premium is low… see if you can continue paying it.

ac joshi says

Sir,

I have two LIC policies 1)LIC jeevan anand,doc nov. ,2008 (premium 10000,SA 5 lakh) and 2)jeevan saral, doc sep, 2011 (prem 12000, SA 25000).I have paid six premium of jeevan anand and three premium of jeevan saral.I dont want to continue now what should I do now?Shall I go for surrender or paid up value.kindly reply at the earliest.

wellwisher says

@as joshi…

surrender is suggested after 5 yrs.. so based on this thumbrule and above mentioned formula, u can calculate how much u get back.

My suggestion is paid up.

Danish says

Actually my father bought a Tata aia life subh life plan 3 years ago .

Here are my policy details :

tenure : 15 yrs

annual premium amt : 12k

amount paid : 36k (3 yrs)

I have following doubts as I am unable to pay further premiums :

1. if I surrender now how much return I would get or if I surrender after 5 yrs (i.e without paying next two premiums) how much return I would get.

2.Is there any surrender charge If I surrender after 5 yrs

3.what is the difference in return if I do paid-up now or paid -up after 5 yrs(after paying next two premiums)

please suggest ….

Thanks in advance

Chetan R. Rathod says

I was paid 4 years of LIC Policy approx amount Rs.96000. due to some probleam i will not continue the policy but i dont want to surrend iwant to know if i will withdrawl after maturity date then how much amount i will get please give me reply.

Tamo Taggu says

Sir, I have paid up my policy for 3 years at the rate of Rs 49440 per year.Now I want to close it due to financial problem.How much money I will get back whereas I paid Rs 148320 in 3 years.My policy is endowment policy.Further what is accrued bonuses and what is surrender value factor.Plz suggest.

GURDAYAL says

Dear Sir

I have taken 2 poloicies- Jeevan anand and jeevan mitra. Premium is yearly 28000 & 11000 Respectively. I have started in Jan 2011 and paid for 2 years. after that i could not pay the premium. i want to surrender it now. I will surrender even if i have to pay 3rd installment also. Please guide.

afreen says

sir i have a policy of jeevan anand .its only 11 months .because of some reasons i cant countue this policy.montly iam paying 1400.can i get my money back pls kindly tell the details.

pattabiraman says

I have surrendered my policy number715406649 on 18th March, 2015 and I would like to know the surrender value to be credited to my bank a/c. Pl inform me when the amount is credited to my bank a/c.

PATTABIRAMAN

srijana says

i would like to know the amount that is accumulated in my LIC account

and also if i surrender how much cash back i will be getting

Harshal Mahajan says

Hi!

Thanks for the information. I am little dumb with the formulas here. :- Unable to get exact amount.

I have paid 5 yearly premiums for jivan saral policy. (12,000 per year) Plan was for 10 years.

Can you please help me with the final figure of surrender value?

manidipa says

If its not too late, surrendering a typical investment cum insurance plan is the best way to save money. But in case 50% of the tenure gone, then I think one can paid up the policy. Again, it depend up on what exactly you want to do with that money after realizing that you have done a mistake by purchasing that policy.

sudha says

I have a Jeevan Anand policy from 2006 and have paid premium of INR 55,499 every year till Dec 2014. Now I want to discontinue ? Should i go for paid up or surrender. If surrendering how much amount I will get. What option is best for me considering that I have already paid premium for almost 10 years

ismail says

I went to surrender my lic police bcoz its long term 28 years. It’s name jeevan Saral now it’s completed 4year 3 months so amount per month 1021. How much return to me money after surrendering.

annesa chakraborty says

i have took a policy named jeevan tarang policy in the year 2012,June.with sum assured of 6,10,000 and premium paying term of 20 years,amount 30,024 yearly. i have paid premium 3 full policy years of amount of 90,072 rupees.And now i have faced little bit of trouble of paying this amount now. My agent is told me that it is possible to reduce sum assured amount and reducing amount should return lic within some time and continue then with reducing premium amount.After that discussion i had that,and now lic reducing my sum assured of 2 lakhs and premium amount is adjusted for 10,044 yearly.After calculating that lic is returning only 33,815 rupees to my account.Which is very low.after calculation i saw that after adjusting the amount of reducing premuim is 10,044*3=30,132 rupees.My previous out standing paid premium amount was 30,024*3=90,072 rupees.Where as my vested bonus shown is 59,000.So where was the bonus amount is adjusted?Why i am loosing of rupees 25,000?when i will still continued this policy?suggest me what to do to returned back my loss amount of 25,000?Pls give me some suitable way out?and actual returning process in this situation?

Ajoy Mohan Singh says

I paid premium upto 15 years for a 20 yrs policy, due to shifting of LIC branch thrice or more, and later I was not in touch of Axis Bank, I could not deposit my premium. Laer, I decided to surrender the policy due to some personal financial hurdles. My papers were accepted by the branch and was assured the payment within one week. After 14 days a man from branch said that I cannot surrender the policy as there is a rule that within two years of maturity policy cannot be surrendered unless there is a mishappening to the policy holder. I am surprised and there is no one to explain what he rule is and if so why this rule is made. Insurance is for the benefit of people or for the creating trouble to them, or for mishappening with policy holder?

Niladri Lahiri says

I have applied for Jeevan Tarang policy in 2010 with a sum assured of Rs5,00,00 and paying a premium of Rs 34313 yearly. I alreday paid 6 years premium. I want to surrender the policy and want to know what would be my paid up value and surrender value. The vested bonus is showing Rs 1,116,00 till date. please reply with details.

Jayant Chowdhury says

I had invested 50000 single premium in lic sampridhi plus in 2011. Now that 5 yrs hve been completed & I am surrendering the policy how much will I get & r there any deductions at the final payment.

Madhupam Krishna says

Samridhi plus was a ULIP product and had the facility that the redemptions will be made at the highest NAV touched by the fund in first 100 weeks or NAV whichever is higher. Current NAV is 14.809 and highest was 15.94 as per data available to me. So multiply your net units (after all charges) with 15.94, that will be your final proceeds. No penalty or other charges are applicable.

Sananda Raha says

Hi, My Dad has an SBI Life Smart Wealth Assure. He has made a one time payment by paying a premium of Rs 1 lac and its tenure is of 10 years. He took the policy in 2010 and now wants to surrender it. What will be the surrender value and how is it calculated?

Madhupam Krishna says

Hi, Sunanda… policy had a lock-in of 5 years and since that is expired the policy can be surrendered. Also, no continuation charges from 5th year mean no deduction. So whatever units are there just multiply with the NAV of the fund, that is the amount you will get on surrendering the policy.

manoj tamboli says

My PLI policy have been 10 Year monthly 856 for 15 Year and now i want surrender so how many mouny return me

manoj tamboli says

My pli policy have been ten year primium 856per month for 15 Year terms i want to surrender so how many return

Madhupam Krishna says

Dear Manoj, as you have not mentioned the policy name or table no, I do not know the surrender value factor. Best would be to approach the LI company and ask for surrender value quote. They will provide you exact amount.

Prashant says

Hi Mr. Krishna, I had bought LIC Jeevan Tarang insurance plan for 20 years on April 2011 with an SA of INR.900000. I paid 18 EMI @ Rs. 11305 per quarter. Now I wish to opt for paid-up & stop further paynet. I have got a bonus of INR. 132500. Kindly confirm how much will I be getting at the end of 20 years if I decide to stop payment,

Madhupam Krishna says

Dear Prashant.. if you apply for paid up, the accumulated bonus if any, is lost. The paid up value will be 18/80 multiply by 9lakhs=202500.

karthic says

Hello Krishna,

I have lic jeevan anand new 815 policy with sum assured 1 lakh and term is 20 years and i paid it for 3 years now which totals to 15600 ..If i surrender it now what amount will i get? whether its 15600 or only 30% of that 15600?

Because the policy details states that “Surrender: After 3 years of full premium payment” and “Guaranteed Surrender Value: 30% after 3 years, 50% after 5 years, Maximum 80% of total premium paid” Its really confusing to understand..Could you kindly clarify this in detail?

Should i have to pay my full premium which is 1 lakh and only 3 years after that am i eligible to surrender? bcoz they say after 3 years of full premium payment…so even if i do that do i get only 30% of my whole premium? really confusing sir..,please help me.

Madhupam Krishna says

It depends on whether you are making the policy paid up or surrendering it. In case of surrendering, you can do it

1) after paying the first 3 years

2) you get 30% of your premiums paid (at least)

3) Approach the LI company for surrender value. They will give you the calculation.

Best is to exit from this policy, and take a term-plan for your life coverage. You have only paid for 3 years so, better to not have a product which does not cover your requirements.

Sonal Tirlotkar says

Hi, I have taken 16 LIC Jeevan Pragati policies having premiums ranging between 1000k to 250k per month and total of the premiums is 8500k per month. Till now I have paid 10 premium per policy. Now, because of some reason, I want to stop paying premiums. But I want to get my money back. I have been through blogs related to Paid up value. Kindly guide me if I should opt Paid up value. Thanks in advance.

Madhupam Krishna says

Dear Sonal,

This is what mis-selling is… 16 policies of the same type. If I have understood correctly, you are paying premiums on a monthly basis and you have paid for 10 months. You cannot surrender or make this policy paid up now. You can surrender or make it paid up after paying premiums for 3 years.

Kiran Kawade says

Hello Sir,

I have 4 LIC policies which i am continuing since jan 2013 for 4 yrs

1) Jeevan mitra (Triple cover) – 405/- (Table Term – 133 – 30),

2) New Jeevan Nidhi – 596/-,

3) New Bima Gold – 683/- (Table Term – 179 – 20),

4) Limited Payment Whole Life – 769/- (Table Term – 005 – 52).

I wanted to surrender these policies, so please advise should i surrender or paid-up these policies.

Thank you

Kiran K

Madhupam Krishna says

Since you have not paid much premium, surrender them and take a term plan as soon as possible.

prak says

Hello Krishna,

I have a SBI life insurance scholar 2 policy. which has rs.500000/- sum assured. my premium is 7371/- qtly. it has been four completed years now. but now I want to invest in mutual funds because time to time I will be required money. please suggest if I surrender this policy then what will I get because every year I am paying approx. 29000/-.

Madhupam Krishna says

Hi… The policy has a lock-in period of 5 years. In case you withdraw the funds which will be the valuation of the units you have, will be kept in Policy Discontinuation fund and will be paid when the lock in over. Another way is to pay the 5th year premium and apply for surrender. then the value is paid immediately. My view will be to apply for surrender immediately and get the funds after the expiry of 5th policy anniversary.