What is the Surrender Value? Know the Features and Benefits
Insurance companies these days offer not only life protection plans but also other plans for customers. Some of them include endowment plans, ULIPs, and money-back policies that help a lot to generate more revenue. On the other hand, some policyholders like to exit from them due to various factors. Most insurers allow a policyholder to terminate his/her insurance policy before the maturity period. Whenever people want to cancel their policy, they should know what surrender value is from different sources that will help gain more advantages.
Most insurance plans will have surrender values, and an insured person should know their definition before terminating a policy. This, in turn, gives ways to overcome any unwanted issues to a large extent. A policyholder should also evaluate what will happen on surrendering an insurance plan to a company. Moreover, he/she must analyze the losses before terminating a policy. A surrender value is an amount paid by an insurer to insured persons when they want to cancel a policy. In most cases, an insurance company will return the amount of paid premiums after deducting some charges.
What are the types of surrender values?
Insurance companies offer plans with two types of surrender values, and insured persons should know them properly.
- Guaranteed Surrender Value
A guaranteed surrender value is payable to an insured person after completing 3 years of a policy. It covers 30% of the total premiums paid and doesn’t include premiums of the first year. Not only that, the value excludes additional costs paid towards bonuses and riders.
- Special Surrender Value
A special surrender value is high when compared to a guaranteed surrender value. At the same value, it may vary from one insurer to another insurer in the markets. An insurer will determine the value based on the sum insured amount, the number of premiums paid, policy term, and bonuses.
How to calculate the surrender value?
Policyholders can use a surrender value calculator online that will help make the right decision while investing money. They have to provide some details such as the policy term, the number of premiums paid, plan name, premium payment mode, tenure, premium installment amount, etc. All of them will help a policyholder to know the exact surrender value when he/she wants to terminate a plan. Most insurance policies come with a lock-in period, and policyholders are not eligible to surrender them. For example, a policyholder should have paid at least 2 years of premium amounts completely in a 10-year plan.
What are the documents needed to surrender an insurance plan?
Anyone who wants to surrender their insurance plans should submit the following documents.
- The original insurance plan document
- ID proof
- Address proof
- Policy surrender form duly filled and signed
- A canceled cheque to receive the payment
What happens after surrendering an insurance plan?
- Loss of death benefit: Surrendering an insurance plan will lead to a loss of death benefit that can put a family in trouble after the demise of a policyholder.
- Loss of investments in ULIP Plans: Those who have ULIP plans may face huge investment losses when they want to surrender their policy. Therefore, policyholders should think once or twice before terminating their plan. Not only that, they have to pay high discontinuation charges that will result in increased expenses.
- Loss of Money: Insurance companies will charge some fees when a policyholder likes to terminate his/her policy. But, unfortunately, there is no guarantee that they will refund the amounts on all paid premiums resulting in money loss.
- Loss of tax benefits: Surrendering an insurance plan may lead to the loss of tax benefits that will lead to several problems.
Things to do before surrendering a policy
A policyholder should know what surrender value is in insurance and its impacts with more attention from different sources. This will help protect a family from financial risks and other issues to a large extent. The surrender value in insurance may vary from one insurer to another insurer in the markets. Hence, it is wise to evaluate them properly before the surrender process.
Apart from that, a policyholder should consider using a surrender value formula that will help a lot proceed further. It makes feasible ways to calculate the exact surrender value, which gives ways to make the right decision.
How to surrender an Insurance policy?
Here are some steps policyholders should follow when they want to submit an insurance plan.
- Intimating the insurer first: A policyholder should intimate the insurer first when terminating a policy. Then, he/she can visit the insurance company’s office in person for this purpose. It will provide a policy surrender form, and he /she should fill the same with essential details. Besides that, he/she can even send the application form through email after downloading the same.
- Taking a copy of the application form: The second step is to take a copy of the policy surrender application form for recordkeeping purposes. It will help use the same for reference purposes in case of any disputes and others.
- Storing a mail copy: If a policyholder is sending the surrender form through email, then ensure that he/she stores the receipt with a copy of the form.
- Submitting the documents properly: While terminating an insurance policy, a policyholder should submit documents properly to get approval as soon as possible. Furthermore, he/she should attest to the documents and mention the valid reasons for surrendering a policy. Checking documents once or twice during the submission process will help a lot to get the amounts with ease.
How do you choose the best insurance policies?
Customers should compare the premium prices of insurance policies online to help them choose the right one accordingly. On the other hand, they should keep certain things in mind before purchasing a plan. Some of them include age, occupation income, terms and conditions, future goals, etc. Finally, they should consider consulting with insurance professionals while buying a policy. This will help overcome complications in the claim process to lead a trouble-free life.