Surrender Value of a Life Insurance Policy
End a policy early and you get the higher of two figures: GSV or SSV.
Surrender value is the money you get if you end a life insurance policy before its term is over. Surrender means complete withdrawal from the contract: the insurer pays the surrender value and the cover stops for good.
For policies from IRDAI-regulated insurers, the 2024 Insurance Products Regulations set how it is worked out. You are paid the higher of two figures: the guaranteed surrender value (GSV) and the special surrender value (SSV).
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The two values
- Guaranteed surrender value (GSV)
- A minimum set by IRDAI as a percentage of total premiums paid, less any survival benefits already paid. A regular premium non-linked policy acquires it once premiums have been paid for at least two consecutive years. Insurers may offer more.
- Special surrender value (SSV)
- A value based on the policy's asset share (par policies) or notional asset share (non-par policies). It must be at least the present value of the paid-up sum assured, paid-up future benefits and accrued benefits. Insurers review it every year.
- Surrender value paid
- The higher of GSV (plus the surrender value of any bonuses or guaranteed additions) and SSV.
Working out a surrender value
Illustration only. Rahul pays ₹30,000 a year on a 15-year non-par savings policy. He has paid three years' premiums and surrenders in policy year 4. No survival benefit has been paid.
- 1
Total premiums paid
3 × ₹30,000 = ₹90,000.
- 2
Minimum GSV for year 4
50% of ₹90,000 = ₹45,000.
- 3
SSV from the insurer's table
Say the insurer's SSV for his policy is ₹52,000. The insurer quotes this; it cannot be worked out from a fixed percentage.
- 4
Amount paid
The higher of ₹45,000 and ₹52,000, so ₹52,000.
Other rules worth knowing
- check_circleSSV becomes payable after the first policy year once one full year's premium is received. For single premium policies and those with a premium paying term under five years, it is payable as soon as the first full premium is received.
- check_circleThe interest rate used to discount SSV cannot exceed the 10-year government bond yield plus 0.5%.
- check_circleThe benefit illustration you sign at the point of sale must show GSV, SSV and surrender value for each policy year.
- check_circlePure term plans and immediate annuities do not acquire a GSV.
- check_circleULIP surrendered after the five-year lock-in: at least the full fund value. Surrendered during the lock-in: the fund value less a capped discontinuance charge goes to the discontinued policy fund and is paid when the lock-in ends.
- check_circleThese 2024 rules replaced the 2015 regulations on surrender and paid-up values. Older study notes may quote the earlier percentages.
Postal Life Insurance (PLI)
PLI policies are issued by the Department of Posts, and their surrender terms are set by India Post, not by the IRDAI rules on this page. For a PLI policy, check the policy terms or ask the post office that services it.
How the exam tests this
IC-38 questions ask what surrender value is, or when a policy acquires one. The trap is confusing surrender value with paid-up value. Surrender ends the policy and pays cash. Paid-up keeps the policy alive with a reduced sum assured and pays later, on death or maturity.
A second trap: candidates assume a term plan has a surrender value. A pure term plan has no savings element, so it acquires no guaranteed surrender value.
FAQs
How is surrender value calculated?expand_more
For IRDAI-regulated policies, the insurer pays the higher of the guaranteed surrender value (a minimum percentage of premiums paid, less survival benefits) and the special surrender value (based on asset share). Bonus surrender value is added to the guaranteed figure.
When does a policy get a surrender value?expand_more
A regular premium non-linked savings policy acquires a guaranteed surrender value after at least two consecutive years' premiums. The special surrender value can be payable after the first policy year once a full year's premium is paid.
Is there a PLI surrender value calculator?expand_more
Postal Life Insurance surrender terms are set by India Post, not IRDAI. Use the policy terms or the post office for a PLI policy. This page explains the IRDAI rules for other life insurers.
Does a term insurance policy have surrender value?expand_more
A pure term plan has no savings element, so it does not acquire a guaranteed surrender value under the 2024 rules.
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