Understanding LIC Policy Surrender Value
If you decide to terminate your life insurance policy before its maturity date, the insurance company will pay you an exit amount known as the Surrender Value. Our calculator helps you estimate the Guaranteed Surrender Value (GSV) to help you make an informed decision.
Life insurance policies are long-term contracts. Premature termination almost always leads to a financial loss because the initial years' premiums go heavily towards mortality charges and administrative expenses.
How is Surrender Value Calculated?
The Guaranteed Surrender Value is calculated using two main components:
Total Surrender Value = (Premiums Paid × GSV Factor) + (Accrued Bonus × Bonus SV Factor)
- GSV Factor: A percentage specified in your policy bond. It starts at 30% in the 2nd/3rd year and gradually increases to near 90% closer to maturity.
- Premiums Paid: The total base premium you've paid over the years (excluding GST and rider premiums).
- Bonus SV Factor: Accrued bonuses also have a surrender factor applied to them, reducing their present exit value.
Alternatives to Surrendering
- Paid-up Policy: If you stop paying premiums after the lock-in period, the policy continues with a reduced sum assured without needing further payments.
- Loan against Policy: LIC offers loans against the surrender value of your policy at reasonable interest rates. This allows you to get cash without terminating your life cover.
- Grace Periods: If you are just facing temporary cash flow issues, you can utilize the grace period or revive the policy within 5 years of the last unpaid premium.