LIFE INSURANCE: Be extremely prudent while surrendering a policy

If I want to discontinue my life insurance policy on how to calculate the surrender value? 
- Nitin Ghate

The surrender value is different in ULIPs and traditional plans. In ULIPs, the surrender value equals fund value minus surrender charge. The surrender charge reduces every year and after five years, it becomes nil. The product brochure or policy document will have the details of the surrender charges. The surrender charges are decided by IRDAI and don't vary from insurer to insurer. However, if you were to surrender the policy within first five years (lock-in period), the surrender value will be deposited in a discontinued fund and the proceeds of that will be payable after the end of the lock-in period.

The surrender value in a traditional plan is higher of Guaranteed Surrender Value (GSV) or Special Surrender Value (SSV). The GSV is a factor of premiums paid and bonuses declared (if your policy is with a bonus or participating policy). The GSV factors will be mentioned in the product brochure and policy document. The SSV is the determined basis current value of assets in the Policy and the insurer will be able to help you in identifying the SSV in your policy.

However, be extremely prudent while surrendering a policy, because you will lose out on the benefits of the policy. Ensure that there is a fall-back plan for the benefits you are going to lose if you are to surrender your plan.

Sumit Rai, MD & CEO- Edelweiss Tokio Life Insurance

Clear your doubts with regard to life insurance. 
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