Are you confused between surrender Vs paid-up? Insurance policies are like security to your loved ones. So, take a decision that doesn’t affect you and your family. The surrender option is nothing but terminating your policy before its maturity age(less than the policy age)and getting back some amount of assured value. In contrast, Paid-up is continuing the policy even after paying of premium has been stopped. You get your assured value when the policy is expired or when an uncertain condition arises.
Paid-up value is like a life cover. Whether it is surrendered or paid-up, there will be a loss for sure. But it is in your hands to choose the right one, and if you think about time value, things are easier to make a decision. So to settle on surrender Vs paid-up, first of all, you would like to understand what these terms are and what happens once you choose either one. So, let’s get into it!
What Is A Paid-Up Option?
If you have signed a policy and completed 3 years of payment time, you are eligible for a paid-up option. But check for exact years in your policy wordings as this might change from one company to another. Under the paid-up option, if a policyholder stops paying further premiums, the quantity is named paid-up value. This is a part of a traditional insurance plan.
This policy stays until it terminates, or an unexpected situation arises in an insured family. If an insured has died, then paid-up value goes to the nominee generally. The sum assured is known as the paid-up value. And this calculated based on the number of premiums paid.
Paid-up Value = (Number of premiums paid/Number of premiums payable) *SA + Accumulated Bonus.
For example, a standard policy with a sum assured of Rs.10 lakhs for 10 years with a premium of Rs.20,000 once a year is paid for 5 years, then the paid-up value will be half the sum assured. Sometimes, a further bonus could also be added to the paid-up value if the insured has completed his/her premiums. This paid-up value with a bonus is claimed to be “Total paid-up value.” So, while choosing the paid-up option, consider the below points, or else you will find yourself in a problem;
- You do not need further insurances, and you are not in a very tight situation to pay premiums.
- Once you are financially safe, then it is better to choose this feature.
- Once you don’t wish to pay premiums, but you would like to run your policy. Then this feature could be useful.
- When your policy maturity is extremely near (maybe 2 to 3years). This feature is outstanding to settle on because it will be a waste to pay these many premiums if you surrender.
What Is Surrender Policy Option?
Once you wish to close your policy immediately to take a position in other policy or even a fund, then surrendering a policy may be a good selection. Even though you do not get the entire amount, you will still get 30-40% of the sum assured value(excluding the primary premium). Value can be more based on the number of premiums you paid. Even this feature is applicable only if you have paid the premium for quite 3 years. If you select to surrender before 3 years, you will lose all your money and not get anything.
Surrender value is calculated as the total paid-up value(paid-up value+bonus) multiplied by the surrender value factor.
Surrender Value = Paid-up Value (including Bonus) * Surrender Value Factor (determined by the company).
This surrender value factor depends on the company’s terms and conditions, and it varies from company to company. Generally, it depends on half of the premium paid minus the first-year premium.
As during this option, you will end this policy completely and take back your money, so it is better to see this below suggestions and then decide;
- Once you aren’t ready to pay the premiums any longer.
- You need money for a few reasons.
- When your policy maturity time is quite 8 to 10 years, and you are not in a position to continue this policy.
- Once you wish to invest in other policies or some funds.
Surrender Vs Paid-Up
In both these options, you will find yourself with less amount. But it depends on the time you select and the position you are in. Surrendering the plan is beneficial as you get money in return. If the surrender money, when invested elsewhere, could pay you up more than the paid-up value, then your decision is true. Sometimes people need immediate money or liquid cash, then surrendering is the better option to choose.
When you wish your family to be financially safe, then the paid-up option is best to settle on. It is a better option since the premium is not paid; you can get a minimum amount. Don’t prefer the surrender option if you are sound and safe.
1. Why is the surrender value less than premium?
2. How much will I get if I surrender my policy?
3. What is guaranteed surrender value?
4. What Is Special Surrender Value?
5. Can I surrender my policy after 10 years?
6. Can I withdraw cash surrender value?
7. Why does the cash surrender value decrease?
8. Can health insurance premiums be paid in installments?
Surrendering a policy is like losing all the advantages from the policy, and you will find yourself with less amount. So, it is better not to choose a surrender option. Handling the policy closure may be a more psychological battle as you cannot change the fact that much of your premium cash will go waste.