Surrender Value (Rückkaufswert)
Surrender value is the amount a life insurer pays to the policyholder upon early termination of a capital-forming policy; it corresponds to the policy reserve less a surrender charge.
Concept
Surrender value is the amount a life insurer pays to the policyholder when the policyholder terminates a capital-forming life or annuity insurance contract early, before the agreed term has expired. It is based on the policy reserve existing at the time of termination, reduced by a surrender charge intended to compensate the insurer for the additional costs and risks arising from early contract termination.
Calculation and Influencing Factors
The amount of the surrender value is significantly determined by the point in time of termination within the contract term: in the early contract years, the surrender value is regularly considerably lower than the sum of premiums paid, since the contract’s acquisition costs – particularly under Zillmerized tariffs – are initially offset against the first premium payments before any meaningful policy reserve builds up.
Economic and Regulatory Significance
Because of the sometimes substantial financial disadvantages of early termination, the calculation and disclosure of surrender value is subject in many jurisdictions to strict transparency and minimum-value requirements for the protection of policyholders; as an alternative to full termination, the policyholder regularly also has the option of paid-up reduction, continuing the contract premium-free with a reduced policy reserve.