Calculators / Insurance
Insurance
Should I surrender my endowment policy?
Put in three figures from your insurer: the surrender value today, the paid-up value, and the maturity amount if you keep paying. The calculator tells you what each choice pays from today, and which one leaves you with more money at maturity.
A policy that pays about 5.3% a year over its full life can still pay you about 7.8% a year from today, because the costs of the early years are already behind you. A bad policy to buy is not always a bad policy to keep.
About the surrender check
Most advice on this question is either "never break a policy" from the person who sold it, or "surrender it today" from someone who has not seen the numbers. Both skip the only question that matters, which is what the policy pays you from today. This page works that out from the figures your insurer gives you.
| Your choice | Money in hand in 13 years |
|---|---|
| Continue to maturity | ₹18,00,000 |
| Make it paid-up, put the ₹50,000 a year at 7% elsewhere | ₹17,07,524 |
| Surrender for ₹2,50,000, put that and the ₹50,000 a year at 7% | ₹16,79,986 |
At a safe 7% elsewhere, continuing wins in this example. If the same money went into equity and earned 12% a year, surrendering would leave about ₹26.6 lakh instead, but that 12% is not guaranteed and the ₹18 lakh mostly is. Change the inputs above to see your own policy.
Should I surrender my endowment policy?
Not by default, and not only because the policy was a poor buy. The example above pays about 5.3% a year over its full twenty years, which is a weak return, but that figure includes the early years, when most of your premium went in costs and commission. Those costs are already paid and you cannot get them back by surrendering. From today, continuing pays about 7.8% a year on the money you would otherwise take out plus the premiums still due, so against a safe 7% elsewhere it is worth finishing. Run your own figures, because the answer changes a lot from one policy to the next.
What is the difference between surrender and paid-up?
When you surrender, you close the policy, the insurer pays you the surrender value, and the life cover ends. When you make it paid-up, you stop paying premiums but the policy stays alive, and at maturity you get a smaller amount called the paid-up value, with life cover reduced in the same proportion. Paid-up is often the forgotten middle option, and in the example it beats surrendering.
How is the paid-up value worked out?
For a traditional endowment, it is usually the sum assured multiplied by the premiums you have paid, divided by the premiums due in all, plus the bonuses already added to the policy. So on a ₹10 lakh policy with 7 of 20 premiums paid and ₹2.8 lakh of bonuses added, the paid-up value is about ₹3.5 lakh plus ₹2.8 lakh, or ₹6.3 lakh. No new bonus is added after you stop paying. Plans differ, so ask the insurer for the exact figure in writing; the estimator in the calculator is only a starting point.
How soon can I surrender a policy?
For traditional plans sold from 1 October 2024, IRDAI's rules make a surrender value payable once you have paid one full year's premium. Older policies often needed two or three years of premiums before any surrender value was paid, and your policy document will say which applies to you. In the first few years the surrender value is usually well below what you have paid in, which is why surrendering early hurts the most.
Is the surrender value taxed?
The surrender value gets the same Section 10(10D) test as the maturity amount. If the policy was issued after 1 April 2012, the yearly premium has to stay within 10% of the sum assured, and for a policy issued from 1 April 2023 the total yearly premium across such policies also has to stay within ₹5 lakh. Also, if you claimed the premium under Section 80C in the old tax regime and the policy ends before premiums for two years have been paid, the deductions you claimed are added back to your income for that year. Check both with your CA before you surrender a large policy.
What return should I compare against?
The fair comparison is with money that is just as safe. The maturity amount of a traditional policy is mostly guaranteed, so the fair comparison is a safe after-tax return, and 7% is close to what PPF pays today, tax-free. If you would put the money into an equity fund and leave it alone for the whole period, a higher figure is fair, but then you are comparing a promise with a market that can fall, and the calculator will lean towards surrender. The rate where surrender and continue are equal is shown under your result, so you can see how much you would need to earn.
What happens to my life cover?
It ends when you surrender, and it shrinks when the policy is made paid-up. If your family depends on this cover, buy a term plan first and close or change the old policy only after the new one is issued, because a new policy can be refused or priced higher after a health problem. Term cover for the same amount usually costs far less than the premium you are paying now. The term cover calculator helps you size it.
My policy matures in two or three years. Should I still surrender?
Usually not, because near maturity the surrender value is close to the maturity amount, so the return from finishing is often high and the few premiums left buy a large final payout. The calculator shows this when you set the years to maturity to two or three. The policies most worth a hard look are the ones with ten or more years and many premiums still to go.
Where do I find the three figures?
Ask the insurer, through its customer portal, a branch, or a written request. You need the surrender value as on today, the paid-up value if you stop now, and the maturity amount if you continue, split into guaranteed and non-guaranteed parts if bonuses are involved. If the person who sold you the policy cannot give you these, ask the insurer directly; you are entitled to them.