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: Fri Dec 09, 2016 12:53 am Post Subject: surrender policy

I need to surrender policy pending divorce, needmoney

Posted: Mon Dec 19, 2016 12:12 am Post Subject: how to my policy surrender

Please help me how can I surrender my life policy

Posted: Fri Feb 03, 2017 04:20 am Post Subject: policy break

Installment break

Posted: Mon Feb 27, 2017 07:21 pm Post Subject: insurance premiums

I have a $10,000 20 pay life insurance policy I've had for 10 years. After speaking with my insurance company I was advised that I have already paid over $11,000. I plan on being around for a while longer so what are my options? My insurance company gave me no options and I don't want to keep paying as the face amount is alrerady less than premiums already paid.

Posted: Fri Mar 10, 2017 02:05 pm Post Subject: sarendar policy

My ne 52 months ka army Pli sarendar kiya premium monthly 3500 muje kitna milega amount

Posted: Tue Apr 11, 2017 06:30 pm Post Subject: Life Insurance Policy

I cashed out my husbands life insurance policy. We both live on social security do I need to file taxes for the life insurance portion?

Posted: Wed Apr 26, 2017 03:50 pm Post Subject: Partial surrender

I want to apply for a partial surrender of a policy how would i do this

Posted: Sun Apr 30, 2017 06:51 am Post Subject:

Call your insurance company

Posted: Mon Jun 19, 2017 09:53 pm Post Subject: Does spouse need to sign surrender request form?

Husband decided to cash out the life insurance policy without telling spouse.

Does spouse who is listed as beneficiary have rights to the payout?

Posted: Tue Jun 27, 2017 01:57 pm Post Subject: Inquisitive

My ex husband took out two life insurance policies. One in 1981 and the other in 1983. He is the insured and his business paid the premiums. I am the owner and the beneficiary. Do I have the right to surrender these accounts? I am considering retirement and could use this money.

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