Surrendering An Endowment Plan

Surrendering An Endowment Plan

We all plan for the long term. But as they say, life has its own plans. A major change in the internal or external world we live in, and we need to make amendments, even withdraw from previous commitments.

One such planned commitment could be a life insurance policy.

The year 2021-22 saw a significant increase in the number of life insurance policies that were surrendered, i.e., discontinued prior to maturity. According to a post by The Indian Express, more than 2.3 Crore life insurance policies were surrendered in 2021-22 (three times that in 2020-21) seemingly due to the financial distress people faced during the pandemic.

You may have taken a long-term investment plan from a life insurance company to meet a financial goal, say child education or say retirement - but due to unavoidable circumstances, you now need to exit or surrender from this plan before its maturity.

You probably do not need to surrender your policy today. In fact, you probably are planning to invest in a new plan. Whatever the case, it is always critical to know how exits will work in any plan, most importantly, financial plans.

In this article, we discuss everything about surrender of non-linked investment plans sold by life insurance companies - from how surrender works, to the steps involved to surrender a plan, as well as the calculation of the amount you will receive when you surrender.

So, let’s begin!

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What Does 'Surrender' Mean?

Surrender, in very simple terms, means to withdraw or discontinue your policy before its maturity date.

Suppose Paakhi has taken an Endowment Plan for a duration of 25 years. In the 20th policy year, she decides to discontinue it due to financial reasons. Because she is withdrawing from the plan 5 years prior to the maturity date, it will be referred to as surrendering the Endowment Plan.

Top Three Reasons for Surrendering an Endowment Plan

While there can be several reasons for surrendering an Endowment Plan, here are the three most common ones -

  • You Have Accomplished The Goal For Which You Purchased The Plan
    For example, Raj purchased an Endowment Plan to fund his spouse’s higher education. But she was awarded a scholarship, with the help of which she completed her studies. Since Raj’s goal behind buying the Endowment Plan is fulfilled and he no longer needs the money, he can surrender it.

  • You Bought A Plan Not Suitable For Your Needs
    You bought the wrong plan. For example, 2-3 years ago, Meera bought an Endowment Plan to secure her retirement. She recently went for lunch with one of her friends. who connected him with a financial advisor and found out that the insurance plan she has purchased does not really meet her needs and requirements. So, she decides to surrender her Endowment Plan.

  • You Are Unable To Afford The Premiums Of The Plan Owing To Financial Difficulties
    For example, Rajesh bought an Endowment Plan in 2015 to fund his daughter’s higher education. In 2020, he got diagnosed with cancer and lost his job as a result. There was also an increase in expenses because of the disease - and Rajesh was unable to afford the premiums of the Endowment Plan. Hence, he chose to surrender it.

When you surrender your Endowment Plan, you’re entitled to receive a Surrender Value. What is that? Let’s see!

What Does A Surrender Value Mean?

Surrender value is the amount that the insurance company will pay to you when you surrender your Endowment Plan.

Basically, an Endowment Plan acquires a surrender value if you’ve paid the premiums for at least 2 or 3 years (the number of years may vary across insurance companies). There are two types of surrender value - Guaranteed and Special. Let’s learn about both these types in detail in the next section.

Two Types of Surrender Value

  • Guaranteed Surrender Value (GSV)
    It is the percentage of total policy premiums paid by you. This percentage may differ based on the product and insurance company you choose.
    The GSV will not include -
    • Any extra premiums you have paid for riders or add-ons.
    • Any bonuses you may have received from the insurance company.

(This may vary from insurance company to insurance company).

How is The Guaranteed Surrender Value Calculated?

The Guaranteed Surrender Value is calculated using the following formula -

GSV = (GSV Factor × Total Premiums Eligible For GSV) + (GSV Factor × Accrued Bonuses/Loyalty Additions/Guaranteed Additions (if any)

Let's understand the concept of GSV better with the help of Mayank’s example.

Mayank and his wife Nisha are planning to have a child next year. To fund his child's education, he decides to invest in a Non-Participating Endowment Plan with a sum assured of Rs. 50 Lakhs. He opts for a duration of 15 years and chooses the limited pay option. So, he is required to pay a yearly premium of Rs. 5 Lakh for a period of 10 years.

A few years later, due to financial difficulties, Mayank is not able to afford the premiums of the Endowment Plan. He, hence, decides to surrender the plan in the 5th policy year. Let’s assume that -

Mayank’s Endowment Plan has a GSV factor of 30% for the 11th year.

Let's assume no guaranteed additions and loyalty additions have accumulated in his plan.

Total premiums paid by Mayank = 5 X 5 Lakhs = Rs. 25 Lakhs.

So, total premiums eligible for GSV = Rs. 25 Lakhs.

GSV = (GSV Factor × Total Premiums Eligible For GSV) + (GSV Factor × Accrued Bonuses/Loyalty Additions/Guaranteed Additions (if any)

= (30% x 25,00,000) + (30% x 0)

= Rs. 7,50,000

So, Mayank is entitled to receive a GSV of Rs. 7,50,000 under his Endowment Plan.

  • Special Surrender Value (SSV)
    Various criteria are used to determine the Special Surrender Value. Insurance companies may revise the SSV at any time with prior approval from the IRDAI (Insurance Regulatory And Development Authority Of India).

    Generally, SSV depends on the following factors - sum assured, policy duration, total premiums paid, bonuses, investment returns, market value of financial instruments like stocks, demographic and other factors like age, etc.

How is The Special Surrender Value Calculated?

The Special Surrender Value is calculated using the following formula -

SSV = [ Sum Assured x (No. of Premiums paid / No. Of Premium payable) + Total bonuses received, if any] x Special Surrender Value Factor

Let’s take a look at Mayank’s example again and understand how much Special Surrender Value will be payable to him.

Let’s assume that the surrender value factor for his Endowment Plan at the time of surrender is 30%.

And -

Sum assured = Rs. 50 Lakhs

Total no. of premiums payable under the plan = 10

Total no. of premiums Mayank has paid = 5

SSV = [Sum Assured x (No. of Premiums paid/No. Of Premium payable) + Total bonuses received ] x Special Surrender Value Factor

= [50,00,000 x (5/10) + 0] x 30%

= [50,00,000 x 0.5] x 30%

= [25,00,000] x 30%

= 25,00,000 x 30%

= Rs. 7,50,000

So, Mayank is entitled to receive a SSV of Rs. 7,50,000 under his Endowment Plan.

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Steps Involved in Surrendering an Endowment Plan

Before you go ahead and surrender your Endowment Plan, you should first learn how much surrender value you will receive. You can get the details about the GSV or SSV payable under your plan from the financial advisor or the insurance company you purchased the Endowment Plan from. If you are certain that you want to surrender your plan, here’s how you can go about it -

  • Notifying The Insurer
    The very first step involves informing the insurance company about your decision to surrender the Endowment Plan. When you notify them, you will also have to disclose your reason for surrendering the plan.

  • Filling The Form
    Then, you will have to fill out a surrender form. You can get this form from the branch office of your insurance company, or ask your insurance company to send it to you on your email ID. Some insurance companies also provide an option to download the form from their website.

    Once you get the surrender form, you will have to fill it out carefully. You should also make sure you keep a copy of the form for your records.


  • Submitting The Documents
    Next, you will have to submit several documents to the insurance company, along with the completely filled surrender form. You can either submit the documents and form in person by physically visiting the insurance company's branch office or you can ask your financial advisor to submit them on your behalf.

Here are some documents the insurance company may ask you to submit -

  1. Original policy documents.
  2. Cancelled cheque with your name on it.
  3. A passbook copy or bank statement with a pre-printed name and account number will be required in case -
  4. The cancelled cheque does not have a pre-printed name and the account number, or
  5. A new account is specified on the cheque.
  6. Identification proof, like your PAN Card, Aadhaar Card, Passport, Driving Licence, Voter ID, etc.
  7. Your latest contact details.
  8. NRE bank statement showing any premium payments made from the NRE account. (An NRE account is a local bank account opened by an NRI in India to save foreign earnings).
  • Verifying The Documents
    The authorities will then verify the form and documents you submitted. After successful verification of all documents, the insurance company will deposit the surrender amount into your bank account. Your Endowment Plan will be terminated once you receive the surrender value.

    So, that is all from our side today. We hope you now have a clear understanding of what surrendering means, the types of surrender value payable under an Endowment Plan, and the steps involved in surrendering an Endowment Plan.

Wrapping Up!

So, that is how a Reduced Paid-Up Guaranteed Income Policy works. If you stop paying your premiums and continue it on a reduced paid-up basis, all benefits payable under it, i.e., the death, maturity, and survival benefits will be reduced. All of these benefits will be reduced in proportion to the number of premiums you have paid to the total number of premiums payable. To avoid any surprises later, make sure you understand how much benefits you or your nominee will receive before converting your policy to reduced paid-up.