Surrendering An Endowment Policy

Every individual plans for the long term while investing in an endowment policy, but it’s a fact that life has its own plans, and nobody has seen the future. So, what if you find yourself in a situation ​​where you need to surrender the endowment policy before it matures? Firstly, never panic because you are not alone! 

50% of life insurance policies in India do not reach maturity. [1] They often get surrendered or lapsed because policyholders miss their premium payments due to many unforeseen reasons. If you are on the same list, read this blog till the end! Here, we are going to explain the procedure of how to surrender an endowment policy. Let’s start by understanding what the term 'Surrender' means.

What Does Surrendering an Endowment Policy Mean?

"Surrender" refers to the voluntary termination of the insurance policy before its maturity date. In simple terms, the policyholders request the insurer to cancel their policy because they are unable to pay premiums due to specific circumstances. 

Now, a question arises: 

Will all the premiums paid by the policyholder become null and void when the policy is surrendered? 

No! Insurance companies pay “surrender value” as a benefit to the insured when they decide to surrender the policy. 

Note: The benefit is only available for plans with a surrender benefit. 

How is Surrender Value Calculated? 

Typically, the surrender value is calculated according to 

• Policy term, 
• Premium paid, and 
• Policyholder’s age. 

Also, it is divided into two types: 

• Guaranteed Surrender Value (GSV)

Guaranteed Surrender Value is predetermined at policy inception and paid after approximately 3 policy years (may vary according to policy terms and conditions). It is calculated as a predefined percentage of the total premiums paid minus any applicable deductions.

• Special Surrender Value (SSV)

SSV is calculated based on the insurance company’s discretion and can vary depending on factors such as the policy term, premiums paid, and current market conditions. Also, it’s usually higher than the GSV.

Disclaimer: Companies have their own terms and conditions for surrender value. Let’s say the surrender benefit will only be given if 3 years of premiums have been paid. But if you cancel the policy after 2 years from the policy commencement date, no benefits will be given.   

Step By Step Procedure To Surrender an Endowment Plan

Follow the below steps to surrender an endowment policy. 

• Notify The Insurance Company

Get in touch with the insurer and let them know that you want to surrender the policy, stating all the reasons. Also, ask your advisor for details about payable GSV or SSV beforehand. 

• Fill Out the Surrender Form

Once the insurance company is done with the initial proceedings, they’ll give you a surrender form that you must file with all the correct details. Don’t forget to keep a copy of the form for your records.

• Submit the Form and Documents

Hand over the completed form and the below documents to the insurance company.

• Original policy documents 
• ID proof, like an Aadhar Card, Voter ID, or PAN card. 
• Passbook copy or bank statement
• Cancelled cheque

Note: The insurer may ask for additional documents. 

• Verification Process

The company will then verify the submitted documents and details. This may take a few days to a few weeks, depending on respective procedures.

After successful verification, you’ll receive the surrender value amount in your bank account, and the policy will be terminated. 

Reasons To Surrender An Endowment Plan

You can surrender the endowment policy in case you are facing the following issues:

• You are facing financial and are not able to pay the premiums.
• You want to invest in a better policy with better returns and benefits.
• The policy is no longer needed for the goal based on which the policy was purchased.

Should You Surrender Your Endowment Plan?

It is generally advisable to not surrender an endowment plan. This is primarily due to the following reasons:

• On surrendering your endowment plan, you immediately lose all protective cover it provides. Although you can always buy another plan, you are left unprotected for quite a while before your new plan gets approved.
• Any new insurance plan you purchase might cost you more. This might happen due to you getting older or other risks such as health conditions and more.
• All premiums that you had paid for your endowment plan will be lost. While you can always gain it back with a more beneficial insurance plan, it is a significant risk. 

You can always purchase a new insurance plan after surrendering an old one. Oftentimes, an old endowment plan might feel wrong or ill-suited for our financial needs. When choosing a new plan, make sure to look for one that has better returns and benefits. However, the above points are to be kept in mind if and when you purchase a new insurance plan. 

What is Paid Up Value?

Even if you cannot continue paying your premium amount for some reason, you can continue your plan at a reduced value. This is known as the paid-up value and is essentially a reduced value of the premium you were having to pay. You can continue your plan with this reduced rate.

Is There Any Alternative To Policy Surrender? 

Yes! Instead of surrendering the policy, you can convert it into a paid-up policy. But what is a paid-up insurance policy? 

In such policies, policyholders stop making premium payments, but due to accumulated cash value, they continue to enjoy insurance coverage, death, maturity, and survival benefits at a reduced value. In short, paid-up policies ensure that you do not lose out on the entire life cover benefit. 

We hope this blog has provided you with a thorough understanding of how to surrender an endowment policy. But before you make the final decision, it’s vital to take an experienced insurance advisor's guidance and understand all the financial implications. 

Call us at +91-7551196989 or write to us with your query at support@insurancedekho.com, and we will help you in the best way possible! 

Frequently Asked Questions (FAQs)

What are endowment plans? 

Endowment plans combine the benefits of life insurance with savings. These provide a lump sum payment to the policyholder if they survive the policy term or to their beneficiaries in the event of the policyholder’s death during the term. 

What does it mean to surrender an endowment policy?

Surrendering an endowment policy means policyholders choose to voluntarily terminate the policy before its maturity date because they are unable to pay premiums. 

Will I lose all my premiums if I surrender the endowment policy?

No! Insurance aggregators pay “surrender value” to the policyholder when they decide to surrender the policy as a benefit. It is typically a percentage of the total premiums paid and may include bonuses, if applicable.

Are there any implications of policy surrendering?

Yes! Policy surrendering has several implications, as explained below. 

• As soon as a policy is surrendered, it will be immediately ceased, and the company is not obligated to pay any benefit, whether its death, maturity, or survival. 

• Insurers may deduct additional surrender charges.

• The surrender value may be subject to taxation. 

Which one to choose: policy surrendering or paid-up policy? 

If there’s a long time period left in the policy maturity and you can’t handle the premium payments, it’s best to surrender the endowment policy.

On the other hand, if maturity is only a few years away, choose the paid-up option, as you’ll continue to receive reduced policy benefits. 

Conclusion

Surrendering an endowment plan is not a very rare occurrence. However, before taking such a step, you must carefully consider all factors involved. It is advisable to surrender the plan only if it is beneficial and profitable for your savings.

Also Read:

• How To Calculate The Value Before Surrendering An Endowment Plan
• A Definitive Informative Guide For Endowment Policy

Disclaimer: This article is issued in the general public interest and is meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive and should research further or consult an expert in this regard.