What is Surrender Value?
Surrender value is the amount you receive when you voluntarily terminate your LIC policy before its maturity date. A policy acquires surrender value only after premiums have been paid for at least 2 consecutive years (for regular premium policies) or 3 years in some plans.
Types of Surrender Value
- Guaranteed Surrender Value (GSV) — A fixed percentage of total premiums paid (excluding first year premium and rider premiums). GSV factors: ~30% after 3 years, gradually increasing to ~90% near maturity.
- Special Surrender Value (SSV) — Based on paid-up value and accrued bonus, multiplied by a special surrender value factor. SSV is usually higher than GSV for policies with substantial bonus accumulation.
LIC pays whichever is higher — GSV or SSV.
GSV Calculation
GSV = (Total Premiums Paid − 1st Year Premium) × GSV Factor %
Approximate GSV factors by years paid:
- 3 years: ~30%
- 5 years: ~50%
- 7 years: ~60%
- 10 years: ~70%
- 15 years: ~80%
- 20 years: ~90%
SSV Calculation
SSV = (Paid-up SA + Accrued Bonus) × SSV Factor
Where Paid-up SA = (SA × Premiums Paid / Total Premiums Due). SSV factor varies between 0.5 to 0.9 depending on the term elapsed.
Important Points
- Surrendering before 3 years usually means no surrender value — you lose all premiums paid.
- Surrendering a policy results in significant financial loss compared to continuing till maturity.
- If you cannot afford premiums, consider making the policy paid-up instead of surrendering — you keep some benefits without further payments.
- Surrender value of money back policies is calculated differently, accounting for survival benefits already received.