Before canceling term insurance, you have to note whether you have taken pure term insurance or term insurance with return on premium. Whether you will get anything if you end term insurance midway or not will depend on this.
Can you surrender term insurance prematurely? This question comes in the mind of many people. A common belief is that term insurance cannot be surrendered before maturity. It is so and also not. You can terminate term insurance prematurely. But after doing this, whether you will get anything or not will depend on whether it is pure term insurance or term insurance with return on premium.
Insurance expert Sweety Manoj Jain says that most companies do not offer any return on term insurance. According to Jain, this is pure term insurance, in which the family of the insured gets the money only if the insured dies within the insurance period. He told that if the insurance period is 30 years and the insured dies within it, then his family will get the insurance amount. If the person dies outside the insurance period, not a single penny will be received.
In which policy returns are available?
A term insurance policy in which returns are mentioned in advance. A policy that has an investment component. Monthly, ULIP, Endowment or Annuity plans. In these, an insured gets surrender value on premature closure of the policy. There are two types of surrender value. Guaranteed and special. While taking the policy, you can ask about it in detail from your policy provider. Bonus is added to the special surrender value. The calculation of these two values is different. Let us see how these are calculated.
According to the website of Calculation
Policy Bazaar, the method of calculating the guaranteed surrender value is very simple. For example, the premium paid by the policyholder of LIC Life Insurance will be 30 percent of the guaranteed surrender value. For example, suppose you have paid a premium of Rs 50,000 at the rate of Rs 10,000 per year for 5 years. You will get guaranteed surrender value of 30 percent of this i.e. 50,000*30/100= Rs 15000. It is noteworthy that the 30 percent here is the surrender value factor and it can be increased or decreased by the insurance provider. This is not fixed.
Now coming to the special surrender value. Suppose your policy is for 10 years, you are paying a premium of Rs 10,000 every year. The maturity value of your policy is Rs 2 lakh. You want to terminate the policy in the fourth year. In this calculation Original Sum Assured*(number of premiums paid/total number of premiums to be paid).
It will look something like this 2,00,000*(4/10)=Rs 80,000. This is your paid-up value. Bonus will be added to this and then the surrender value will be factored. The surrender value is considered to be only 30 percent. For the purpose of calculation, the value of the bonus is assumed to be Rs 40,000. Now it will look something like this. (80,000+40,000)*30%, 1,20,000*30/100= 36,0000. Your special bonus will be Rs 36,000.
