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Effect of Surrender Values on Life Insurance Policy Termination

Abstract

The study examines the effect of surrender values on life insurance policy termination, focusing on how the amount payable to policyholders when they voluntarily terminate their policies may influence decisions to surrender life insurance contracts. Surrender value represents the amount a policyholder may receive when a qualifying life insurance policy is terminated before its maturity date. The level of surrender value can influence the financial attractiveness of terminating a policy and may therefore play an important role in policyholder behaviour, insurance persistency, and the management of life insurance portfolios. The study will investigate the relationship between surrender values and the rate of life insurance policy termination. It will examine whether differences in the amount available to policyholders upon surrender are associated with variations in policy termination behaviour. Particular attention will be given to how the accumulated cash value, policy duration, premium contributions, and deductions influence surrender values and subsequent policyholder decisions. The study will focus on factors such as surrender value levels, policy duration, premium payment history, accumulated cash values, policyholder age, premium amounts, and investment returns. Actuarial valuation techniques will be used to determine the relationship between policy values and potential surrender outcomes. Comparative analysis will also be applied to examine termination patterns across policies with different surrender value structures and durations. A quantitative research approach will be adopted for the study. Relevant secondary data on life insurance policies, surrender values, premium payments, policy duration, cash values, and policy termination records will be analyzed. Descriptive statistics, surrender-rate calculations, actuarial valuation techniques, comparative analysis, and appropriate statistical methods will be employed to evaluate the relationship between surrender values and policy termination. Different surrender value levels will be compared to identify patterns in policyholder termination behaviour. The study is expected to reveal that surrender values can influence life insurance policy termination decisions, particularly where the amount available to policyholders represents a significant proportion of their accumulated policy value. Higher surrender values may make termination financially attractive to some policyholders, while low surrender values may discourage immediate surrender and encourage continued policy participation. The strength of this relationship is expected to vary according to policy duration, premium contributions, and individual policyholder circumstances. The findings are expected to be useful to life insurance companies, actuaries, policymakers, and policyholders. The study may assist insurers in understanding how surrender value structures influence policyholder behaviour and in developing appropriate strategies for managing surrender risk. It may also provide actuarial information for improving assumptions used in policy valuation, cash-flow projections, reserving, and insurance portfolio management. The study concludes that surrender values can influence life insurance policy termination by affecting the financial consequences of voluntarily ending a policy before maturity. It is therefore recommended that insurers carefully evaluate surrender value structures and monitor surrender experience across different policy durations. Clear communication of surrender values and their financial implications should also be provided to policyholders to support informed decisions and improve the management of policy termination risk.

Keywords: Surrender values, life insurance, policy termination, policy surrender, policyholder behaviour, cash value, insurance persistency, surrender rates, actuarial valuation, life insurance policies, premium payments, policy duration, insurance reserves, policyholder decisions, insurance portfolio management.