Definition
Surrender
Surrender is the voluntary termination of a life policy by the holder before maturity, in exchange for the surrender value.
When a policyholder surrenders, the insurer pays the higher of the Guaranteed Surrender Value and Special Surrender Value, and the cover ceases. Surrendering in the early years of a traditional plan usually means a heavy loss because surrender-value percentages start low.
Recent IRDAI norms aimed to improve early and mid-term surrender values, addressing a long-standing consumer grievance. Before surrendering, holders should weigh alternatives such as making the policy paid-up, taking a policy loan, or, for ULIPs, simply stopping premiums after the lock-in.
Related terms
- 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.
- Special Surrender Value (SSV)Special Surrender Value is a discretionary surrender amount based on the policy's paid-up value and bonuses, usually higher than the guaranteed surrender value.
- 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.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.