Definition
Guaranteed Surrender Value (GSV)
Guaranteed Surrender Value is the minimum amount, fixed by regulation, that a traditional life policy must pay if the holder surrenders it after acquiring surrender value.
Under IRDAI rules, a traditional savings policy acquires a guaranteed surrender value once a minimum number of years' premiums have been paid. The GSV is computed as a regulator-prescribed percentage of premiums paid (excluding extras and rider premiums), with the percentage rising the longer the policy has run.
The GSV is a floor; the insurer pays the higher of the GSV and the Special Surrender Value. Because early-year GSV percentages are low, surrendering a traditional policy in the first few years usually means a steep loss of paid premiums, which is why surrender penalties are a common consumer complaint.
Related terms
- Paid-Up ValuePaid-up value is the reduced sum assured a policy retains if the holder stops paying premiums after acquiring surrender value, instead of surrendering it.
- SurrenderSurrender is the voluntary termination of a life policy by the holder before maturity, in exchange for the surrender value.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.