When a life insurance policy is taken out, costs are incurred to enter into and manage the contract and to provide the insurance benefit, the risk costs. In the case of unit-linked insurance, hedging and investment costs are also incurred. All costs are apportioned evenly among all premiums. So, each premium payment pays some of those costs.
The surrender value is the sum total paid out when an endowment policy is cancelled early. It is lower than the contractually agreed sum insured at maturity. Any costs not yet paid by the time the policy is cancelled are offset.