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:

  1. 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.
  2. 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.
  3. 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.
  4. Consequence: Upon surrendering the policy, the policyholder forfeits the life insurance coverage, and the policy becomes void.

Paid-Up Value:

  1. 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.
  2. 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.
  3. 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.
  4. Maturity Benefit: At the maturity date, the policyholder receives the paid-up sum assured along with any applicable bonuses as the maturity benefit.
  5. 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.

Top of Form


[Note: This is not lic orginal website.This is  the only thing to shear information about lic]