Surrender value and paid-up value are two different concepts associated with life insurance policies, including LIC (Life Insurance Corporation of India) policies. These values come into play when policyholders decide to discontinue their policies prematurely. Let's understand the difference between surrender value and paid-up value:
Surrender Value:
- Definition:
Surrender value is the amount that an insurance company pays to the
policyholder if they choose to surrender or terminate their policy before
its maturity date.
- Cash
Value Component: Surrender value is applicable to permanent life
insurance policies that have an accumulated savings or investment
component. These policies build up a cash value over time, which
policyholders can receive if they surrender the policy.
- Calculation:
The surrender value is calculated based on the total premiums paid, the
policy's duration, and any applicable surrender charges or fees deducted
by the insurance company. It is usually lower than the total premiums
paid, especially if the policy is surrendered early in its term.
- Consequence:
Upon surrendering the policy, the policyholder forfeits the life insurance
coverage, and the policy becomes void.
Paid-Up Value:
- Definition:
Paid-up value is an option available to policyholders of participating
life insurance policies (e.g., endowment plans) if they decide to
discontinue paying premiums after a specific number of years have been
paid.
- Reduced
Coverage: When a policy is converted to a paid-up policy, the sum
assured (coverage amount) is reduced, but the policy continues to remain
in force without the need for further premium payments.
- Accumulated
Benefits: The paid-up value includes the accumulated bonuses and
returns that the policy has earned up to the point of being converted to a
paid-up policy.
- Maturity
Benefit: At the maturity date, the policyholder receives the paid-up
sum assured along with any applicable bonuses as the maturity benefit.
- Death
Benefit: In the event of the policyholder's demise during the paid-up
policy's term, the beneficiaries receive the paid-up sum assured (reduced
coverage) as the death benefit.
In summary, surrender value is the amount paid by the
insurance company if the policy is surrendered before maturity, while paid-up
value is the reduced coverage and accumulated benefits received when a
participating policy is converted to a paid-up policy. Surrendering the policy
results in the termination of coverage, while converting to a paid-up policy
allows the policyholder to keep the policy in force with a reduced coverage
amount.
[Note: This is not lic orginal website.This is the only thing to shear information about lic]
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