Surrendering A Guaranteed Income Plan

Are you unable to pay the premiums of the Guaranteed Income Plan (also known as a Money-Back Plan) you purchased? Or have you discovered another policy that provides more benefits than the one you currently own? Or do you think you no longer need the policy? Well, in all of these cases, you can choose to stop or discontinue your Guaranteed Income Plan.

But, what happens if you discontinue your policy? Will the insurance company pay you anything? And, what is the process of discontinuing a Guaranteed Income Plan?

Let's find out!
 

Surrendering a Guaranteed Income Policy

‘Discontinuing’ a Guaranteed Income Plan before the maturity date is referred to as 'surrendering'.

Suppose Mayank buys a Guaranteed Income Plan in 2020 for a duration of 20 years, i.e., until 2040. In the year 2025, he decides to stop his policy because he has found another plan better suited to his needs. Since he is discontinuing the plan prior to maturity, it will be referred to as policy surrender.
 

Surrender Value Under A Guaranteed Income Plan

Your Guaranteed Income Plan will acquire a Surrender Value after you complete a specific number of premium payments under it. Some Guaranteed Income plans, for example, acquire a Surrender Value if you pay premiums for at least 2 years, while others acquire a Surrender Value if premiums are paid for at least 3 years. The period after which you can surrender your policy will differ across insurers.

Now, if you decide to stop your policy after this period, the insurance company will pay a Surrender Value to you. And, once you receive this amount, your policy will end and all benefits under it will cease.
 

Types of Surrender Value Under A Guaranteed Income Plan

There are 2 types of Surrender Value - Guaranteed and Special. Let’s learn about both these types in detail.

Guaranteed Surrender Value Or GSV

GSV is the amount that is guaranteed to you. It is the percentage of total premiums you’ve paid minus the assured benefits that the insurer has paid to you. This may differ depending on the product and the insurance company.

GSV is the amount that is guaranteed to you. It is the percentage of total premiums you’ve paid minus the assured benefits that the insurer has paid to you. This may differ depending on the product and the insurance company.

GSV does not include rider premiums. Accrued bonuses (if any) are also excluded in some products. This, too, may differ across products and insurers.

GSV is calculated using the formula -

GSV = [ (GSV Factor X Total Premiums Eligible For GSV) + (GSV Factor X Accrued Bonuses (if any)) – (Already Paid Survival Benefit, if any) ]

Special Surrender Value Or SSV

SSV, unlike GSV, is not guaranteed by the insurance company. It may be revised from time to time by the insurer, with IRDAI’s prior approval.

SSV depends on several factors, such as the sum assured you select, the policy duration you opt for, premiums paid by you, bonuses, investment returns, demographic and other factors like age, the market value of financial assets like stocks, and so on.

SSV is calculated using the formula -

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

Let’s Understand Both GSV And SSV Better With The Help Of Ishaan’s Example.

Ishaan, 30 years old, buys a Non-Participating Guaranteed Income Policy with a cover amount of Rs. 40 Lakhs. He chooses a policy tenure of 25 years and a 15-pay limited pay option. The premium calculated for the policy is Rs. 4 Lakhs. So, Ishaan will have to pay Rs. 4 Lakhs for 15 years and he will be covered under the policy for 25 years. Under the plan, the survival benefit will be paid once every 5 years after Ishaan completes all his premium payments - that is, after 15 years.

Let’s assume:

In the 11th policy year, Ishaan comes across a newly-launched insurance product that he wants to invest in. As a result, he decides to stop his Guaranteed Income Plan.

He decides to surrender his plan in the 11th policy year and will not get any survival benefits.

The GSV, as well as the SSV factor for the 11th policy year, is 10%.

Now, let’s see how much GSV and SSV will be payable to Ishaan.

GSV Calculation:

Ishaan has paid the premiums for 11 years. So, total premiums paid = Rs. 44 Lakhs. (11 X 4 Lakhs)

Note: Since the policy is non-participating, no bonuses will be accrued.

GSV = [ (GSV Factor X Total Premiums Eligible For GSV) + (GSV Factor X Accrued Bonuses (if any)) – (Already Paid Survival Benefits) ]

= [ (10% X 44,00,000) + (0) - (0) ]

= 4,40,000 + 0

= Rs. 4,40,000

So, the insurance company will pay a GSV of Rs. 4.4 Lakhs to Ishaan.

SSV Calculation:

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

Note: Since the policy is non-participating, no bonuses will be accrued.

= [40,00,000 x (11/15) + 0] x 10%

= [40,00,000 x 0.73] x 10%

= 29,20,000 x 10%

= Rs. 2,92,000

So, the insurance company will pay a SSV of Rs. 2.92 Lakhs to Ishaan.

Now that you’ve understood how surrendering a Guaranteed Income Policy works, let’s take a look at some reasons for surrendering the policy and the steps involved in the policy surrender process.
 

Common Reasons for Surrendering A Guaranteed Income Plan

While there can be numerous reasons why you may want to discontinue your Guaranteed Income Plan, here are three most common ones -

• You have fulfilled your objective behind purchasing the policy, and so, no longer see the need to continue it.
• You are unable to pay the policy's premiums due to financial constraints.
• You are dissatisfied with your existing policy, or you have discovered another policy that provides better benefits than the one you currently have.
   

Process of Surrendering A Guaranteed Income Policy

Here's how you can surrender your Guaranteed Income Plan -

• Firstly, you must ask your insurance company or financial advisor about the GSV or SSV payable to you if you surrender the policy.

• If you are sure about your decision to surrender the plan, you will need to inform your insurer or your financial advisor. You will also have to disclose the reason for surrendering the policy to the insurance company.

  Please note that if you stop paying the premiums but fail to inform the insurer that you want to discontinue your policy, it will continue on a reduced paid-up basis.

  Learn about Reduced Paid-Up Guaranteed Income Plan in detail here: .

• Next, you will have to fill out a surrender form. You can get this form from the company's branch office. You can also request your insurer to email the form to you, or you can download it from their website if it is available.

• You will have to submit this filled-out surrender form to the insurance company, along with some documents, such as -
  • Original copy of the policy documents.
  • Cancelled cheque with the policyholder's name on it.
  • Copy of the passbook or bank statement having the pre-printed name and the account number - if the cancelled cheque does not have a pre-printed name, and the account number or a new account is listed on the cheque.
  • Proof of identity - Aadhaar Card, PAN Card, Driving Licence, Voter ID Passport, etc.
  • Duly filled policy surrender or cancellation form.
  • Latest contact details.
  • NRE bank statement indicating any premiums paid from the NRE account. (A bank account opened in India in the name of an NRI, to park their foreign earnings is known as an NRE account.)

• You can submit the form and documentation in person to the insurer's office, or you can have your financial advisor do so on your behalf.

• Then, the authorities will verify all the documents. The surrender amount will be credited to your bank account following successful verification.

• Once you receive the surrender value, your Guaranteed Income Plan will terminate.
   

Wrapping Up!

We hope you now have a better idea of how to surrender a Guaranteed Income Plan. If you wish to discontinue your Guaranteed Income plan make sure you ask your insurer about the surrender value they will pay. Also, ensure you properly understand the steps involved in the surrender process with your insurance company - to avoid any problems.