What if you want to surrender your life insurance policy?

by NonsmokinJoe » Fri Jul 11, 2008 09:13 pm

You may have your own reasons for surrendering your life insurance policy. The reasons must be significant enough, since surrendering a policy would mean that you lose all the benefits that had prompted you to go for it in the first place.

How much will you get back if you surrender the policy?

You'd receive the accumulated cash value if you surrender your policy before the maturity date. The cash value is the total sum of money that you have paid as premiums for the policy along with the interests earned on them.

What happens after you surrender your policy?

You'll be entitled to receive the accumulated cash value after you surrender your life insurance policy. However, surrendering the policy before the maturity date will impact the way you'll receive it. The consequences of your life insurance policy surrender are enumerated below:
  1. You'll have to pay surrender fees - You'll be charged a fee for surrendering your life insurance policy before the date of maturity. The earlier you surrender the policy, the higher will be the surrender charge that you'll have to pay.
  2. Cash value gets reduced if you'd taken out a loan - The cash value will be less if you had taken out a loan against the policy, since the loan amount and the accrued interest will be deducted accordingly.
  3. Taxes will be imposed - Since you're surrendering your policy earlier than the date of maturity, the cash value might be considered as taxable income. If you have any outstanding loan balance on the policy, taxes will be levied on that as well.
  4. You'll have to renounce the death benefits - The cash value you get from the policy, after you surrender it, will include the accumulated dividends and unearned premiums. You give up both the death benefit and life insurance coverage that you had with the existing policy, and won't need to pay premiums on it anymore.
The remaining cash value is directly paid to the policyholder - either in cash, or in check.

What if you want to retain the death benefits?

It is obvious that no one buys life insurance policy, with the intention to surrender it mid-way. Therefore, it will be wise to consider other options rather than going for a life insurance policy surrender. To retain the death benefits, one may:
  1. Opt for a partial surrender - Transform the existing life insurance policy into a reduced paid-up insurance. Surrendering the policy as a whole gets rid of any coverage that you had with it. With a partial surrender, a portion of the life insurance policy is retained. However, the death benefits and cash value gets reduced.
  2. Borrow against the cash value - If you have immediate cash requirements, you can even take out loans against the cash value, without giving up the death benefits. You may repay the loan with time, but don't need to worry even if you're unable to pay it back. The loan amount will simply be deducted when the insurer gives out the death benefits to the beneficiary.
  3. Purchase a new policy - Use the cash, after surrendering his life insurance policy, to purchase a new term life insurance policy for an extended time period.

How to surrender your life insurance policy

If you've made up your mind that you'll surrender the life insurance policy, you can do the following:
  • Call up the insurance company and know how to surrender your policy.
  • Ask for a Service Request Form.
  • Fill in the necessary details about your policy in the form. Tick the option where you want to surrender the policy.
  • Fill in your preference, i.e. the way you want to receive the available cash value from the policy.
Your insurer might ask you to submit a letter for surrender of insurance policy, Check out the sample insurance surrender letter, which you can forward to your insurer for the purpose.

Related Readings

I have an insurance question:

I am married, age 60, with a $75,000 whole life policy on myself. Premium is $115 a month, and Cash Surrender Value is approximately $20,000. I recall the policy projections showed the cash surrender value would start to erode in my 60's, as mortality probability increases. I also just read that this is common, and to consider surrendering the policy, but no time frame was suggested.

We don't need the life insurance coverage for estate taxes, and my wife's income (she's a realtor) has plummeted dramatically. She's tired of that business, so who knows what the future holds regarding future earning potential (she's late 50-something). Health insurance coverage is a big issue ($780/month just for her - I have single coverage from my employer).

Based on the facts presented, should we consider cashing in my whole life policy?

Total Comments: 115

Posted: Mon May 28, 2012 10:50 am Post Subject:

You can't cash it out because it is not your policy.

Posted: Thu Jun 07, 2012 02:08 pm Post Subject: Cash Value policy

I have 2 cash value policies both worth $25,000. I have other insurance also well over $400,000. I was thinking of cashing these 2 policies in later down the road for the cash value (maybe in 20 yrs; I've had the policy for only 10 yrs now). Is that a good idea? I got this policy when I was single and make very small monthly payments ($100). your thoughts.

Posted: Thu Jun 07, 2012 04:54 pm Post Subject:

I was thinking of cashing these 2 policies in later down the road for the cash value (maybe in 20 yrs

Have you consulted your Magic 8-Ball on this one yet?

You can't be serious asking a question in 2012 about what you should do or might do in 2032. No one here can give you a better answer than that Magic 8-Ball toy.

Anything could happen in the next 20 years . . . you could die, the Martians could take over the world and having life insurance or its cash value, or stocks, or bonds, or mutual funds, or cash under the mattress all become meaningless, or Jesus could return and some of us would be overjoyed as we walk the streets of gold while others would have considerably different concerns that no amount of life insurance cash value could solve.

Or Obama could be reelected in November and within the next four years AmeriKa the socialist state becomes a reality . . . and your cash value is confiscated and given to those who have no life insurance at all and demand the government give them some -- for free, just like Obamacare.

I can tell you this, in the meantime, don't stop making those monthly payments, or your cash value will surely evaporate, regardless of the outcome of any of my "thoughts" above.

Posted: Mon Jul 23, 2012 04:48 pm Post Subject: 75,000 life policy too expensive now

I have had my $75,000 whole life policy for many years..I am 77 years old in decent health..the yearly premiums are getting to expensive..could I cash it in and buy a
term policy to protect my wife and reduce my yearly outlay / or what would be a better choice???

Posted: Mon Jul 23, 2012 07:18 pm Post Subject:

You could "cash it in" but you will almost certainly NOT like the cost of a term policy at your age. A new term policy might have a level premium for 2-5 years, but it would eventually become Annual Renewable Term, meaning your cost of insurance will increase CONSIDERABLY every year thereafter. In the next 20 years or so, you would pay in the neighborhood of $175,000 or more in premiums to keep that $75,000 death benefit to age 95

I assume when you say "the yearly premiums are getting expensive" you mean the same amount you've been paying all these years is now a much larger percentage of your monthly/annual income. If your actual premium is increasing, then you probably do not have a typical Whole Life policy.

One alternative would be to work with a LICENSED Life Settlement Broker who would find someone willing to "buy" your insurance policy from you. Even that's going to be difficult because your insurance amount is relatively small at only $75,000. Your wife would no longer be the beneficiary.

Another alternative would be to make a Section 1035 Exchange of your policy's cost basis and cash value into a new, "guaranteed minimum death benefit" form of Universal Life insurance. This policy would, essentially never acquire additional cash value, and the cash value you brought into the policy would likely soon evaporate (over 5-10 years) or be used to "buy-down" the premium, but as long as you paid the premium, there would be a $75,000 death benefit available. Missing a premium payment in the future could void the guarantee, and you could be forced to pay even higher premiums to keep your policy alive -- the same scenario as buying that very costly term policy.

Similarly, the cash value in your current policy may also be enough to pay the premiums for a number of years into the future, but that, too, will erode the death benefit over time, as the loans to pay premiums accumulate with interest (if you were not paying some or all of those amounts back to the insurance company).

For now, don't give up what you have. It may be the best thing for you. That would be the most dreadful mistake.

As a Licensed Life & Disability Insurance Analyst, I can perform an unbiased policy analysis for you to give you a better idea of what your options are or may be.

Posted: Mon Jul 23, 2012 08:47 pm Post Subject:

Are California Licensed Life and Disability Insurance Analysts, allowed to solicit business from out of state?

From what you've written about disability coverage in the past, hopefully, you don't have any customers who are paying you for DI advice.

Posted: Tue Jul 24, 2012 12:23 pm Post Subject:

This is not a question about DI, if you had taken the time to read the post, it's about life insurance.

CIC 32.5. "Life and disability insurance analyst" means a person who, for a fee or compensation of any kind, paid by or derived from any person or source other than an insurer, advises, purports to advise, or offers to advise any person insured under, named as beneficiary of, or having any interest in, a life or disability insurance
contract, in any manner concerning that contract or his or her rights in respect thereto.

This does not mean soliciting insurance. And it does not require compensation.

Posted: Tue Jul 24, 2012 05:41 pm Post Subject:


I understand that his question was about life insurance. I was just pointing something out about DI.

I thought that the part "for a fee or compensation of any kind..." required compensation. Since that is integral to the definition, if you remove the fee, how are you working as an analyst?

I didn't ask whether you you could solicit insurance out of state. I know that the answer to that is "no".

I asked whether you could solicit "business" from out of state. In case I wasn't clear, I was asking about your ability to solicit analyst work out of state. I asked the question because I don't know the answer.

Is Max Herr, a California licensed "Life and Disability analyst" allowed to solicit business on a public forum to do analyst work?

Posted: Thu Sep 20, 2012 06:32 pm Post Subject: surrender policy

i have fill out all the necessary form ot surrender .how long will it take to return

Posted: Fri Sep 21, 2012 02:54 am Post Subject: ANY SUGGESTIONS IN SURRENDERING MY WHOLE LIFE POLIY

Hi Sil,

I would like to surrender my whole life policy due to financial reasons. Please advise whether is it worth a penny. I am 51yrs I have been paying premium of $50.20 since 1986(26yrs),

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