What is Surrender Value of Life Insurance & How it is Calculated?

What Is a Surrender Value?

Types of Surrender Value in Life Insurance

How is the Surrender Value Calculated?

Do All Life Insurance Policies Offer a Surrender Value?

What Is Surrender Value Fee?

What Is the Financial Impact of Claiming Surrender Value on Investment?

FAQs about the Surrender Value of Life Insurance Policy

How can I claim a surrender value from my insurance company? up-arrow

You need to communicate with the customer care department of your life insurance company that you want to surrender your policy. You can also ask how much surrender value you will get and what charge you will have to pay. If you want to proceed with your decision, you will have to submit the filled-in application form for surrendering the policy and all other necessary documents.

Which documents are required while applying for the surrender value? up-arrow

Following are some of the documents that you need to submit to your insurance company while applying for the surrender value:

  • Original documents of the policy
  • Bank account details where the insurance company will deposit the sum
  • KYC documents, including voter ID card, Aadhaar card, PAN card, passport, etc. 

Do I have to pay any income tax on the surrender value? up-arrow

The amount you get as a surrender value  before the lock-in period of your policy will increase your gross annual income in a financial year. You will have to pay your income tax according to the tax slab you will fall under after adding the surrender value.

Is TDS applicable on the surrender value of life insurance policy? up-arrow

Yes, according to Section 194DA of the Income Tax Act of India, the insurance company will apply tax deducted at source or TDS on your surrender value. The rate of tax under this section is 5%. The deduction will take in place in case the surrender value crosses the threshold value of ₹1 Lakh. However the tax implication depend entirely on the prevailing tax laws.