How do I calculate the surrender value of ABSLI policy?
Introduction
Life insurance policy is a financial security tool that assures you of a secured future. The insurance policy is a way to accumulate funds for the worst time in life when you need money urgently.
The policy provides benefits either on the death or maturity time. But before this time, if you face any financial crisis and suddenly require money, you can also surrender the Life insurance policy. Willing to explore the option and be read to battle the emergencies as soon as they strike?
Read further to know what is the surrender value of an insurance policy?
Table of Contents
What is a surrender value?
How is the Surrender Value Calculated?
Types of the Surrender Value under Life Insurance Policy.
When will the life insurance policy acquire a surrender value?
What is a surrender value?
A surrender value is the amount that the life insured/policyholder will receive from the insurance company when the former decides to terminate the policy before the maturity period.
It is the actual sum of money that the policyholder will get when they try to find out the cash value of the policy.
Next let us see how the surrender value of an insurance policy is calculated?
How is the Surrender Value Calculated?
Knowing the surrender value of an ABSLI Insurance policy is extremely easy. The insurance companies in common use the Surrender Value Calculator to compute the surrender value.
Surrender Value= Sum Allocated in savings up to the mid-term date of surrender +Earnings based on the savings.
The insurance calculator would also require some other inputs that include:
- Policy term
- Amount of the premium paid
- Number of years the policy has completed
- Premium payment mode
- Premium instalment amount.
Types of the Surrender Value under Life Insurance Policy.
These are two different types of surrender value defined under the life insurance policy.
Guaranteed Surrender Value:
A fixed sum guaranteed is provided by the insurance company after the insured surrenders the life insurance policy. The amount will depend on the surrender value determinant which is the percentage of cumulative amount of premium paid. The surrender value of the policy grows with a factor of 100 when the life insurance policy progresses nears maturity.
Special Surrender Value:
Special current value of the insurance policy is higher than that of the guaranteed surrender value. This value will depend on the amount ensured, premium paid by the policyholder, bonuses, and the policy term.
Special Surrender Value: (Accrued bonuses+Paid-up Value) X Surrender Value Factor.
The paid-up value can be calculated as the basic sum assured multiplied by the number of premiums payable or the number of premiums paid.
After reading the types of surrender values, it is important to understand when does a life insurance policy acquire a surrender value.
When will the life insurance policy acquire a surrender value?
The life insurance policy will acquire a surrender value when this happens:
When the policy term is less than 10 years.
The surrender value of the life insurance policy is acquired when the policy premium amount is paid regularly for two consecutive years.
When the policy term is 10 or more than 10 years.
The life insurance policy gets a surrender value when the premium for the life insurance policy is paid for three consecutive years.
You can surrender a life insurance policy when:
- you feel that you do not have the premium paying capacity.
- you do not need the life insurance cover.
- there is no family to whom you want to provide the benefit.
Let us learn it with the example of a term insurance. Suppose you own a term life insurance policy. The insurance cover will provide life protection to the family after the death of the life insured. The benefit amount helps the family to handle financial crises like loan liabilities. But suppose your family does not need the help or you are free from the loan responsibilities, you would not want to pay the premium for the term plan.
In this scenario, you can surrender your term life insurance policy. Before surrendering, you must know the reasons why to buy term insurance.
Why buy term insurance?
A term insurance policy is a life insurance policy that provides you life protection for a specified period. The insurance policy will give death benefit to the dependents in the family if the life insured passes away. The sum assured can be used to reduce the financial liability, if any.
Other than this, let us see what are the term insurance benefits.
Benefits of the term insurance policy.
These are the reasons the term insurance policy will help you.High Life Cover: The term insurance policy provides a high life cover. In case of an unfortunate event the high sum assured will be helpful for the dependents in the family. High sum assured of Rs.1 crore can be picked for life protection.
Affordable Premium:
The term insurance policy is available at an affordable premium. For example, you can get Rs.1 crore term insurance for Rs.683/- per month.
Life Cover with additional riders:
The term life insurance policy can be extended with the additional riders. The additional covers come at a nominal cost but that makes the scope of the coverage wider.
Return of Premium Option:
Under term life insurance policy, if the return of premium option is selected, all the premium paid will be returned at the maturity of the policy. The life insured must survive the policy term to receive the benefit.
Tax Benefit:
The term insurance policy gives you tax deduction under Section 80C of Income Tax Act, 1961. The total amount of deduction that is permissible is up to Rs.1.5 lakhs. Apart from the premium paid, the total amount of money received as death benefit is also tax exempt under Section 10(10D).
How to surrender an ABSLI policy?
You can surrender an ABSLI policy by following these steps:
- Fill in and deposit the surrender form.
- Deposit original policy documents.
- Submit cancelled cheque, ID proof, Policy cancellation form, and latest contact details.
Allow the insurance company to process the cancellation request.
Conclusion:
Surrendering a life insurance policy is an individual’s choice. The policy surrender value is ascertained when the premium is paid for at least 2 consecutive years. Before surrendering your life insurance policy, it is important that you purchase a life cover which is adequate for your life goals.
All the life insurance policies can be surrendered. Doing it when the policy gains some cash value is important and only then it becomes beneficial. For more information on surrendering ABSLI life insurance policy, visit the link.
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