What Does Surrender Cost Index Mean?
The surrender cost index is a metric that establishes the cash surrender values of life insurance policies at given times in the future, should the insured decide to surrender their policy for a cash payout. A useful index, it helps potential buyers compare cash value life insurance plans and choose a suitable one.
Insuranceopedia Explains Surrender Cost Index
The surrender cost index, which is presented to potential buyers, shows the comparative costs of cash value life insurance policies to help them decide on a policy. Insurance companies use a complicated formula to calculate it, but the basic process involves assuming the premiums and dividends accumulate over a period of time at a certain annual interest rate and then subtracting the accumulated dividends and the policy cash value at the end of the given time period from the accumulated premiums are subtracted. To put it more simply, it determines the difference between the total premium payments after a certain period and the policy's projected cash value to arrive at the actual cost of the policy.