Surrender values in life insurance policies vary and depend upon the type of policy you own, the terms of the policy, and the number of years you have held the policy. Generally, to calculate top surrender value (PLI) of an existing policy, the following formula can be used:
PLI Surrender Value = [Sum Assured * Unpaid Loyalty Additions] – [Allocated Discontinuance Charges + Allocated deductions from PL policy]
Sum Assured: Sum Assured is the amount that the policyholder is entitled to receive in case of death or at the maturity of policy.
Unpaid Loyalty Additions: Unpaid loyalty additions are bonus accumulated over time such as Terminal bonus and Reversionary bonus, which are added to the policy and reflect as a part of the surrender value payable under PLI.
Discontinuance Charges: Discontinuance charges are the fees that are to be paid by the policyholder whenever the policy is surrendered.
Allocation of deductions from PLI Policy: Certain deductions may be made if the policyholder has obtained several loans or applied for the top up amount.
It is always advisable to read the policy document carefully before purchasing any life insurance policy. Knowing the surrender value of a policy also helps you decide whether to surrender or not. It is also important to talk to the life insurance advisor to understand how the surrender value is calculated and to get the accurate surrender value.
For further details on calculating the surrender value of an existing life insurance policy, you can visit this link.