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: Sat Sep 22, 2012 10:34 pm Post Subject:

You need to address your question directly to the insurance company.

This website is not connected to your insurance company.

Posted: Fri May 17, 2013 08:02 pm Post Subject: Whole life policy

I wanted to know if I had whole life policy and it lapse do I get the cash value or do I lose it?

Posted: Sat May 18, 2013 09:17 pm Post Subject:

if I had whole life policy and it lapse do I get the cash value or do I lose it?

It depends on the reason for the lapse, and how long you've had the policy. Why did your policy lapse, and how long have you had it and how much have you paid in premiums?

Generally, whole life policies include an "Automatic Premium Loan" provision that allows the insurance company to invade your cash value and "borrow: from it to pay unpaid premiums at the end of the grace period. The more you've paid in premiums and the longer you've owned the policy, the more cash value you should have.

If your cash value has been exhausted to pay premiums, then there is no cash value remaining, and would explain a lapse. There would be nothing to refund or recover.

If you policy is one of the few without an Automatic Premium Loan provision, and it lapses due to nonpayment of premium, your cash value must be used in one of three main ways -- cash refund, purchase extended term insurance, or purchase reduced paid-up insurance. State "nonforfeiture" laws usually require the insurance company to use the extended term option, but your policy could state otherwise.

Without more information from you, there is no way to properly answer the question.

Posted: Fri Aug 02, 2013 03:01 am Post Subject: please help?

My father passed away 6 years ago and I found he had a 5000 dollar face amount. On me since 1984, 30 years. Whole life insurance policy.. how do I get this and how much do u think it has in it?

Posted: Fri Aug 02, 2013 04:44 am Post Subject:

If the policy is even in force after all these years, it might have a few hundred dollars of cash value. Contact the insurance company to find out for certain what the condition of the policy is.

Posted: Sat Apr 19, 2014 02:16 am Post Subject: cash in policy my father gave me

I am on disability and I cashed a policy my father gave me in 2012 he had it since I was a baby he was the beneficiary and borrowed 7000. never made a payment I cashed it & gave it to my mother to do Home repairs so I can move in with her she also bought me a 3000 Truck 1991.. She has paid me back in more ways than one . The policy was cashed in june of 2012, The Irs reported it to SOS and they may take my ssi away. The total amount of the policy was 11000.

Posted: Sat Apr 19, 2014 07:36 am Post Subject:

And did you have a question? When you surrender a life insurance policy for its cash value, the amount you receive is considered income. Not the entire $10,000 face amount of the policy, only the $3000 you actually received.

Posted: Wed Aug 27, 2014 07:46 pm Post Subject: selling insurance policy

I became disabled in 2004 I had two policies both for 50 k
One term life one whole lifeWhen I became disable
I had a disability clause in both policies they are paid up
I have two more insurance policies and I was wondering how to sell these two that are paid up and if I can

Posted: Wed Aug 27, 2014 09:43 pm Post Subject: Life insurance

I have a 40 year old life insurance policy that I did not know my father took out on me he has passed away they told me the policy is worth 10,000 what are my options to do with this policy?

Posted: Thu Aug 28, 2014 06:59 am Post Subject:

Reply to Dannys truck . . .

Your policies are highly unlikely to be marketable -- they are only valued at $50,000 each. In the "life settlement" market, first, term life policies of any amount are almost never purchased, and, second, most other cash value policies are unlikely to be considered unless the face amount is well in excess of $1 million, each.

You may have other options available. Contact me for more information.

Add your comment

Enter the characters shown in the image.