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    What is Surrender Value in Life Insurance & How It Is Calculated.

    Last Updated On 22-03-2021

    One Comprehensive Plan That Secures All Your Life Goals

    A life insurance plan is an effective financial tool to secure your loved ones' future financial interests. It helps you safeguard your family at a time when you are not physically present to do so yourself. You can choose a sum assured and premium as per your income and expenditure and add suitable riders to enjoy an enhanced cover.

    Financial experts recommend buying a life insurance policy at an early age. This allows you to get a high sum assured at a comparatively low premium. It is also advised to not surrender the policy and enjoy maturity benefits at the end of the term. However, there can be certain unexpected financial constraints that can compel you to surrender your plan in the middle of the term. When such a thing happens, the insurance company may be liable to pay you a surrender value. Read on to know more about surrender value and how it is calculated in a life insurance plan.

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    What is the surrender value in a life insurance plan?


    The surrender value in life insurance plans refers to the amount of money an insurance company owes you if you cancel or withdraw your before the maturity date. This amount is payable to you after deducting the applicable surrender charges. The surrender value and charges can differ for each policy as per the details of the plan. Any policy will acquire Surrender value after all due premiums for first 2 policy years has been paid in full. There is no surrender value in the case of a pure - term insurance plan.


    How many types of surrender values are there in a life insurance plan?


    Typically, there are two types of surrender values in a life insurance policy.

    1. Guaranteed surrender value: As the name suggests, this is the guaranteed amount of money that the insurance company pays you when you surrender your plan. The guaranteed surrender value is specified on the policy document signed by you and the insurer at the time of purchasing the policy. The guaranteed surrender value can increase with the number of years you stay invested in the plan. So, the closer you surrender towards the maturity date, the more money you can get back.

    2. Special surrender value: The special surrender value largely depends on the paid-up value and the surrender value factor of an insurance plan. The paid value refers to the reduced sum assured of your plan. This happens if you stop paying your premiums after 2 years, and you can continue the policy with a sum assured that is reduced. This reduced value is paid value. The paid-up value is calculated with the following formula:

    Paid-up value = Sum assured x (Total number of premiums paid/Total number of premiums payable)

    The surrender value factor, on the other hand, refers to a percentage of the paid value. It also includes any bonuses accrued. Special surrender value is non-guaranteed and the insurer can change these factors at any time during policy termIt is calculated with the following formula:

    Special surrender value = (Paid-up value x Surrender value factor) + (Bonus x Surrender Value Factor for Bonus)

    The Surrender Value payable shall always be higher of Guaranteed Surrender Value or Special Surrender Value.


    What happens when you opt to take the cash surrender value and give up your life insurance plan?


    Surrendering your policy can have consequences in both the short and long term, such as:

    • You lose the death benefit: If you choose to surrender your insurance plan, the death benefit will be removed. This means that in the unfortunate event of your demise, your family will not be able to claim a settlement from the insurance provider.
    • You lose your invested money: Although you are paid the cash surrender value, the money that you invested is lost. The surrender value is calculated depending on the premiums you have paid to the insurer and the bonus accrued till the time of surrender. This is less than the sum assured or maturity benefit that you would have received at the time of maturity.
    • You pay discontinuation charges in ULIPs: In the case of a ULIP, if you surrender your plan before the lock-in period is over, you will also have to pay a discontinuation charge to the insurance provider. However, if you surrender the plan after the lock-in period, the surrender value will be the same as the fund value at the time of surrender.
    • You lose out on tax benefits: A life insurance plan does not only support your loved ones in their hour of need but also helps you save money by offering you tax benefits. If you surrender your policy, you can no longer enjoy these tax benefits.


    How is the tax calculated on the surrender value in life insurance plans?


    The surrender cash value is exempt from tax in certain conditions.

    • The surrender value is not taxable if you have purchased the policy before March 31, 2003.
    • If you purchased the policy on or after April 1, 2012, you do not pay any tax on the surrender value, as long as the sum assured of your life insurance plan is ten times or more than the annual premium paid towards your policy.
    • If you purchased the policy between April 1, 2003, and March 31, 2012, you do not pay any tax on the surrender value, as long as the sum assured is five times or more than the annual premium paid towards your policy.
    • If you purchased the policy on or after April 1, 2013, you do not pay any tax on the surrender value if you are a disabled individual as per the provisions of Section 80U. The same is applicable if you suffer from an ailment listed under Section 80DB. However, in both these cases, the sum assured should be 6.7 times or more than the annual premium paid towards the life insurance policy.
    • In the Budget 2021 proposal, government has withdrawn exemption under section 10(10D) of the Act, benefit with respect to any ULIP issued on or after the 1st February 2021, if the amount of annual premium payable during the policy term exceeds Rs. 2,50,000. Such ULIP will be considered as capital asset and will be akin to equity oriented mutual fund. Capital gain tax applicable at the time of redemption. Security transaction tax also be applicable. Death benefit of such ULIP to be exempt

    The surrender cash value is not exempt from tax if you do not meet any of the terms and conditions mentioned above subject to Tax deduction at Source (TDS) as pe the Section 194DA of Income Tax Act, 1961So,

    • You will not be able to claim any tax exemption on the surrender value under Section 10 (10D). In this case (other than ULIP), the money received as surrender value will be considered as an ‘income from other sources’ and will be added to your income for the year. This may put you in a higher tax bracket.
    • If you had claimed tax exemption under Section 80C for the premiums paid towards your policy in the earlier years when your policy was active, you would have to pay additional tax. The previous tax exemptions are reversed on surrendering a life insurance plan if policy is surrendered within two years of issuance


    Should you surrender your life insurance plan?


    It may be advised to not surrender your life insurance plan unless absolutely necessary. Instead, it helps to build an emergency fund to handle any unforeseen expenses that may come your way. Moreover, surrendering a life insurance policy may leave your family high and dry at the wrong time.


    To sum it up


    Surrender charges can vary for each policy and insurer. Therefore, it helps to discuss this in detail before you purchase a plan. Moreover, picking a plan that is affordable and suitable for your income and budget can make it easy to pay all your premiums, regardless of your other expenses. PNB MetLife offers many useful life insurance products that can help you secure your family at affordable rates so that you never feel that your insurance plan is a burden on you.

    Tax implication on surrender value mentioned above is as per our understanding of Income Tax laws and subject to change from time to time. Clients are advised to consult their tax consultants before taking any final position



    The aforesaid article presents the view of an independent writer who is an expert on financial and insurance matters. PNB MetLife India Insurance Co. Ltd. doesn’t influence or support views of the writer of the article in any way. The article is informative in nature and PNB MetLife and/ or the writer of the article shall not be responsible for any direct/ indirect loss or liability or medical complications incurred by the reader for taking any decisions based on the contents and information given in article. Please consult your financial advisor/ insurance advisor/ health advisor before making any decision.

    PNB MetLife India Insurance Company Limited
    Registered office address: Unit No. 701, 702 & 703, 7th Floor, West Wing, Raheja Towers, 26/27 M G Road, Bangalore -560001, Karnataka
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    Goods and Services Tax (GST) shall be levied as per prevailing tax laws which are subject to change from time to time.
    The marks "PNB" and "MetLife" are registered trademarks of Punjab National Bank and Metropolitan Life Insurance Company, respectively. PNB MetLife India Insurance Company Limited is a licensed user of these marks.
    Call us Toll-free at 1-800-425-6969, Phone: 080-66006969, Website:, Email: or Write to us: 1st Floor, Techniplex -1, Techniplex Complex, Off Veer Savarkar Flyover, Goregaon (West), Mumbai – 400062, Maharashtra. Phone: +91-22-41790000, Fax: +91-22-41790203.


    Beware of Spurious Phone Calls and Fictitious / Fraudulent Offers!
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    As your trusted life insurance partner, PNB MetLife is with you amidst the current COVID-19 outbreak. Our policies also cover COVID-19 Claims. In case of a Death Claim, kindly submit the signed Claim Intimation Letter mentioning the policy number, brief of the insured event and other claim documents on the email mentioned herewith. Please write-in to us at or You can also call us on 1800-425-6969 for death claims intimations and for any queries on Monday - Saturday between 10:00 am - 7:00 pm.

    PNB MetLife Insurance, amongst the trusted Life Insurance companies in India, aims to provide a wide range of Life Insurance products that suits the needs of an individual at every stage of his life. Life Insurance Plans range from Term Life Insurance PlansTerm PlanProtection PlansLong Term Savings Plans , Retirement Plans & Child Education Plan.

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