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I Have Cleared My Financial Liabilities. Should I Surrender My Life Insurance Policy?

  4/3/23 2:22 PM

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Your regular term insurance serves various purposes, and the most important one is securing your loved ones financially. However, in the later stages of life, as liabilities come to an end, the next thought is to surrender the term life insurance policy.

Should You Surrender Your Term Life Insurance Policy?

Enlisted are some of the questions you must ask yourself before you decide to surrender your term life insurance policy:

  • Do I have any liabilities that are yet to be addressed? This is most common amongst individuals who have retired and are living off their pension.
  • Do I have and financial dependents who need monetary assistance in my absence?
  • Do I have any unpaid loans?
  • Do I have any prevailing health conditions that would necessitate the requirement of a life cover term plan?

If your answer to all the aforementioned questions is ‘no,’ then your regular term insurance or Saral Jeevan Bima might be burdening your finances without serving your financial needs. Under such conditions, it would be prudent to surrender your term life insurance policy. Your policy can be surrendered by writing a brief letter to the insurance provider that includes your name, address, policy number, and reason for termination.

Contrarily, if the answer to even a single question is ‘yes’ then you must hold on to your decision to give up on term insurance cover.

Using a term insurance premium calculator, you can determine the term plan cost and even compare policies. Surrendering your life cover term plan when you are the sole breadwinner of the family can leave your dependents in a compromising position in your absence. Moreover, the term plan cost is negligible in light of the protection it offers. This cost can be lowered still if you buy term insurance online.

Surrender Value of Your Term Insurance

There is often a misconception that it is not possible to surrender your term insurance. Contrarily, as per a directive issued by the Insurance and Regulatory Development Authority (IRDA), term plans in India provide the option to give up on your policy at any time. Occasionally, a surrender charge might be levied upon the policyholder for premature surrender. However, these charges are not applied if the policy is renounced after five years.

If your term insurance plan included a maturity benefit component (for return of premiums paid term plans) aside from a life cover, then you are eligible to receive a surrender value. However, if it was a pure term plan that does not include an investment factor, then there is no surrender value associated with it.

Schemes such as term plans with return of premium (TROP) attract a surrender value that the policyholder is eligible for. However, if you abruptly stop paying the premiums for the plans with an investment component, then no surrender value is paid to the insured member.

Flexibility is an important feature of a term insurance plan, and so you can transform your plan into a paid-up policy. Complete payment of the premium amount frees the policyholder of future obligations. In this scenario, the policy remains active until the demise of the policyholder or voluntary policy termination. A clause associated with this is that the policy must at least complete three years without lapses in premium payment.

Money-back Features in Traditional Policies

Typically, under a TROP with guaranteed surrender value, the insurance company provides a fixed percentage of the premiums paid under different conditions. These are based on the time of policy surrender from inception:

  • Between two to three years: 30% of premiums are payable
  • Between four to seven years: 50% of premiums are payable
  • Last two years: 90% of premiums are payable

As for the special surrender value, it is calculated using the following formula:

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

The Surrender Value Factor incorporates the percentage of the paid-up value and the bonus. 

Why Should You Not Surrender Your Term Insurance?

The primary reason for purchasing a term insurance is that it takes care of your financial liabilities on your behalf to ensure your loved ones live comfortably. Here are some of the reasons why it is beneficial to stick to your policy:

  • It will ensure that your loved ones are looked after even when you are no longer around.
  • Term insurance will ensure that your existing liabilities will be taken care of so that your family is not in debt.
  • It covers health risks that can come uninvited at any time and burn a sizable hole in your savings.
  • Mental peace is an undervalued aspect; however, every individual would like to ensure that their loved ones continue to live well. Term plan rids you of the concern of what would happen to your family in your absence.

A term insurance plan protects your family’s future from unforeseeable events. This simple life cover comes with flexible premium payment options and a choice of deciding the premium payment mode.


Term insurance is a way to lead a worry-free life, and contrary to popular opinion, it is extremely easy to understand term insurance and buy term insurance online.




Aastha Mestry -  Portfolio Manager  

An Author and a Full-Time Portfolio Manager, Aastha has 6 years of experience working in the Insurance Industry with businesses globally. With a profound interest for travelling, Aastha also loves to blog in her free time.

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