If you’re planning on cashing in life insurance policy, then one of the most popular practices is surrendering your cash policy, which is a good choice. According to this method, you can give back your policy to your insurer company in exchange for money. In doing so, the company becomes the owner again, and you will not be required to pay the premiums thereafter. However, it’s important to note that many companies let you surrender only on the completion of 3 years ownership over the policy; you can contact your life insurance provider to know the same.


A.     PROS

  1. You will get cash on the exchange; however, it’s important to note that you may not get the face value or the benefit value, but you will get the amount after a series of calculations, like the tax, etc. Since you immediately get the amount in hand, you can use it for your immediate financial needs.
  2. On surrendering the policy, you will become eligible to purchase a policy from other companies.

B.     CONS

  1. Your beneficiary will not receive the death benefit on account of your death, while you tend to lose your life insurance coverage.
  2. Since you no longer have the ownership over the policy and subsequently won’t be paying any premiums, you will not be able to borrow money from the cash value of your policy.
  3. The surrender charges will be more on account that your policy is relatively new; this means that the older your policy is, the fewer surrender charges will be levied.
  4. The funds you receive will be taxed.
  5. Most importantly, if you have been regularly receiving a bonus or dividend from the company, such offers will no longer be available for you.


Generally, there are two ways to calculate the surrender value; the guaranteed value and the special surrender value. The former will be mentioned in your product brochure as well as the policy bond. However, in the latter, the company starts to calculate the value once you put forward the surrender request.

  1. Guaranteed Surrender Value: To get this benefit, you should be the owner of the policy for a minimum of three years and should have paid the premium values throughout the years with no interruption. Generally, you will be given 30% of the total premium you have paid. However, the premium for the first year will be excluded. It’s important to note that if you have obtained additional premiums like the accidental death benefit, then such benefits be excluded. Also, if you have received any bonus through the policy, then that might be excluded as well.
  2. Special or Cash Surrender Value: This value is usually calculated by multiplying your total paid-up value, bonus and the surrender value factor. If you stop paying your premium amount after a span of time, you will continue to be the owner of the policy, but the assured sum of money tends to reduce accordingly. This is calculated by multiplying the sum of the original assured money with the ratio of the number of paid premiums and the number of premiums to be paid. The last element to be multiplied is the surrender value factor; the factor can be obtained on addition of your paid-up value as well as a bonus. Ideally, you can ask for these factors from your insurance provider to calculate efficiently.


  1. Surrendering of pure term plans: Since term plans are low-cost insurance policies, the surrender benefit is usually not enabled, and thus, you will not get cash on the exchange. Ideally, for cashing in life insurance policy, you can surrender during the free look period, or you can let your policy lapse; the former means the allotted period for you right after purchasing the policy, which is usually 15 days’ time where you can change your decision within that period. On returning during such a period, you will be entitled to your premium amount after the deduction of certain charges.
  2. Surrendering of endowment and unit-linked plans: Usually, you will be expected to own the policy for three years, and your premium payment history must show that you were paying without interruption.
  3. Surrendering of ULIPS (Unit-Linked Insurance Plans): If you stop paying the premium amount before the lock-in period, which is 5 years, your policy tends to lapse. After lapsing, you will get the benefit by the end of 5 years after the deduction of certain charges. It’s important to note that such charges range between $2000 and $6000; the earlier you surrender, the higher the charge to be levied. However, if you surrender after the lock-in period, you will get back your fund value with no deduction or charge.


You have to inform your insurance provider company regarding the surrender of your policy.

To analyze your request, you will be asked to fill a form along with the provision of such details:

  1. Your original policy bond.
  2. A photocopy of your bank passbook or any of your recently canceled cheque leaf; this is because most insurance provider companies prefer facilitating payments through a bank and thus, your latest details are required.
  3. You need to carry both the original as well as a photocopy of your identity proof and address proof. On analyzing the same, the original copy will be returned to you.
  4. On completion of the above-mentioned steps, your request will be processed within 10 days. If you qualify for the same, your policy will be taken back by the company on providing cash.


Since there are numerous types of policies, subsequently, there are numerous benefits that are conferred on returning the same as well. Ideally, you can choose the type of policy with more surrender benefits and fewer deduction charges; this will help you insure as well as retract with more ease.


Published by rudds james