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Thread: How to calculate the Paid-Up Value, Surrender Value and Loan Value?

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    PW Stalwart v.r.s.nathan's Avatar
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    Exclamation How to calculate the Paid-Up Value, Surrender Value and Loan Value?

    Mr. Vikram Singh takes an endowment policy of 25 years term on 28/3/1985 for sum assured of Rs. 1 lakh and has paid all the premiums upto till 28/3/2004 i.e. for 20 years. Now, he would want to know how much loan he can get?

    To get the Loan Value, one should know the Surrender Value, which is dependent on Paid up Value of the policy. Hence, they can be obtained by using the following formula in a step-by-step method as shown below:
    Part A -
    No of years premium paid / Policy term * Sum Assured

    Part B -
    Bonus / 1000 * Sum Assured

    1. Paid-Up Value =
    Now, substituting for formula 1 ‘PART A’, we get 20/25 x 1,00,000=80,000
    Substituting for Formula 1 “PART B’, we get Rs. 1321/1000x1, 00,000=1,32,100
    Adding PART A and PART B of Formula 1, we get Rs. 2,12,100 (Rs 80,000+1,32,100)


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    PW Stalwart v.r.s.nathan's Avatar
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    2. Surrender Value = Surrender Value Factor X Paid up Value / 100
    By substituting for Formula 2 we get, 65.49/100x2, 12,100=1,38,904

    3. Loan Value = 90% of surrender Value (approx.)
    Therefore, calculate 90% of 1,38,904 to get the loan value, which works out to Rs. 1,25,014/-
    Last edited by Expert; 01-11-2009 at 09:11 PM.

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    PW Stalwart v.r.s.nathan's Avatar
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    The minimum surrender value is 30% of total amount of premiums paid excluding the premiums paid for the first year and all extra premiums and/or additional premiums (extras charged by insurer for Health or Hazardous occupation and premiums paid for additional benefit). In addition, the surrender value of any existing bonus already attached to the policy is also paid. This surrender value is known as granted surrender value.

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    Just to add - Once surrender value is calculated, loan to the extent of 90% of surrender value can be granted to the policyholder after filling certain legal formalities such as executing a bond assigning the policy etc.

    In case of paid up policy i.e. lapsed policy, the loan % allowed is 85%. A paid up policy is a lapsed policy. It is entitled for the vested bonus (Bonus already accrued). It is not entitled for future bonus of future valuation. The % of loan granted varies from company to company.
    * SAFE
    Self Appointed Financial Expert


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