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    Chapter 14 (Surrender Value)

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    Khan Abdullah
    Surrender Value is the sum of money an insurance company will pay to the policyholder or annuity holder in the event his or her policy is terminated before its maturity or the insured event occurs. Surrender Value will not be equal to the accumulated reserve because certain expenses or losses are involved in payment of surrender values.

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    Chapter 14 (Surrender Value)

    Uploaded by

    Khan Abdullah
    319 views11 pages
    Surrender Value is the sum of money an insurance company will pay to the policyholder or annuity holder in the event his or her policy is terminated before its maturity or the insured event occurs. Surrender Value will not be equal to the accumulated reserve because certain expenses or losses are involved in payment of surrender values.

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    Surrender Value is the sum of money an insurance company will pay to the policyholder or annuity holder in the event his or her policy is terminated before its maturity or the insured event occurs. Surrender Value will not be equal to the accumulated reserve because certain expenses or losses are involved in payment of surrender values.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    319 views11 pages

    Chapter 14 (Surrender Value)

    Uploaded by

    Khan Abdullah
    Surrender Value is the sum of money an insurance company will pay to the policyholder or annuity holder in the event his or her policy is terminated before its maturity or the insured event occurs. Surrender Value will not be equal to the accumulated reserve because certain expenses or losses are involved in payment of surrender values.

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    © All Rights Reserved
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    Download as pptx, pdf, or txt
    You are on page 1of 11

    Chapter 14

    Surrender Value

    Slide prepared
    prepared by:
    by:Abdullah
    AbdullahAl
    AlYousuf
    Yousuf Khan
    Khan
    Slide
    Assistant Professor
    Professor
    Assistant
    IUBAT
    IUBAT

    McGraw-Hill/Irwin

    Copyright 2006 by The McGraw-Hill Companies, Inc. All


    rights reserved.

    Nature and Meaning


    When the insured wishes to surrender
    his policy or fails to pay his premium,
    reserve is no longer accumulated and
    the insured, generally, is given a
    surrender value.
    The surrender value will not be equal
    to the accumulated reserve because
    certain expenses or losses are involved
    in payment of surrender values.

    Definition
    The amount of premiums paid which
    is returned to the policyholder at the
    time of surrendering the policy.
    Surrender Value' The sum of money
    an insurance company will pay to the
    policyholder or annuity holder in the
    event his or her policy is voluntarily
    terminated before its maturity or the
    insured event occurs

    Calculating Surrender Value


    Accumulation approach;
    Surrender value = full reserve surrender charges
    Surrender charges are;

    Initial expenses
    Adverse financial selection
    Adverse mortality selection
    Contribution to contingency reserve
    Contribution to profit
    Cost of surrender

    Savings approach;
    Surrender value = (sum assured + accumulated value of future
    expenses + future reversionally bonus, if participating policy)
    (accumulated value of all future premiums + expenses incurred in
    processing surrender value)

    Forms of Payment
    The policy holder can get the
    surrender value in any of the
    following forms;

    Cash surrender value


    Reduced paid up insurance
    Extended term insurance
    Automatic premium loan
    Purchase of annuity

    Cash Surrender Value


    The policyholder can get the value of
    surrender in cash.
    When the policyholder gets the cash,
    the contract comes to an end and the
    insurer has no obligation to pay on that
    particular policy.
    Since all the amounts surrendered is
    given at the time of surrender, the cash
    benefit is generally less than the other
    benefit.

    Reduced Paid up Insurance


    The surrender value is not paid in
    cash, but the original amount of
    policy is reduced in certain proportion
    and the reduced amount is paid
    according to the term of policy.
    The benefit will be reduced to the
    level at a ratio up to the premium is
    paid.

    Extended Term Insurance


    The net cash value arisen at the time
    of surrender of a policy can be used
    for payment of as single premium for
    purchasing of term insurance.
    The sum assured will be paid only if
    the death occurs during the term of
    the life assured.
    But if the assured does not die within
    the term, nothing is paid.

    Automatic Premium Loan


    The surrender value is used for
    payment of future premium.
    Thus, the policy will continue up to
    the period the surrender value is
    exhausted.
    Each premium is paid automatically
    as it comes due by creation of a loan
    which with interest becomes a lien
    upon the face of the policy amount
    until paid.

    Purchase of Annuity
    Annuity can be purchased with the
    surrender value.
    Instead of taking the surrender value
    in cash, the annuity purchased from
    the available surrender value.
    The amount of annuity depends upon
    the amount of net ash value, the
    attained age of the policyholder and
    the type of annuity required.

    End of Chapter

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