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: Thu Aug 28, 2014 07:01 am Post Subject:

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

The policy may have a "face amount" of $10,000, but if that's true, the policy today will not be worth anything close to $10,000. Who is "they" and what exactly did "they" say?

Posted: Tue Sep 30, 2014 08:53 pm Post Subject: Cash Surrender Of Whole Life Policy

]I have a group universal whole life insurance policy for 38.000 that has been in effect since 1975. If I decide to do a cash surrender on this before my death would I get this $38.000 face value in cash?

Posted: Tue Sep 30, 2014 10:26 pm Post Subject:

If I decide to do a cash surrender on this before my death would I get this $38.000 face value in cash?

The $38,000 amount is ONLY payable to a beneficiary (or your estate if you have no surviving beneficiary) following your death. Your surrender value is the amount of money residing in the cash accumulation account, and is included in the $38,000 death benefit, assuming your group policy uses the Option I "Level Death Benefit" selection.

If you do not have your most recent account value statement, you can call the insurance company directly to obtain that information. Group UL will not accumulate much cash value unless you are contributing premiums on a regular basis.

Posted: Thu Nov 20, 2014 06:31 am Post Subject:

If you want to surrender your life insurance policy, then you can ask to the company regarding this, or I think you can also write the cancellation letter to the life insurance cancellation department.

Posted: Tue Dec 23, 2014 12:31 pm Post Subject: life insurance question

I've had a life insurance policy over 10 years that I have paid off. Now i asked my agent could i cash it out last year but he told me i was unable to i knew i could but didn't think to much of until me and a coworker was talking and she said i could. Now i called my company 1800 number gave me the run arounds about my policy at first but finally i spoke to customer service agent and i was told my policy had already been cashed out a year ago and i told her i was not aware of that and i did not cash my policy out i feel like it was done by somebody in the company cause there is know way i did it what should i do.

Posted: Sat Feb 21, 2015 03:22 pm Post Subject: Surrender request form

I am 68 years of age wanting to withdraw the balance of ending cash value of $3,000.00 for personal debt payoffs. I have had this policy since May 28, 2005. Would like a form to download for withdrawal request. Also is there a penalty for this withdrawal?

Posted: Fri Mar 06, 2015 03:13 am Post Subject:

Would like a form to download for withdrawal request. Also is there a penalty for this withdrawal?

Your insurance company can answer both questions.

Posted: Tue Mar 10, 2015 04:19 am Post Subject: Universal premium life

A lot of good comments on here. I have a question about my own policy. It's a universal life policy. I'm 36, started the $250k policy at age 31. I pay $165 per month and don't want to pay on it because I'd like to put the money for in my 401k each month instead. My employer has term insurance for $250k for about $3 per month. Basically free. I've paid roughy $10k into the policy so far and I'm wondering if I even made the right choice of buying it.

Any advice on what to do with the policy with the cash value being what it is?

Posted: Tue Mar 10, 2015 04:22 pm Post Subject:

Any advice on what to do with the policy with the cash value being what it is?

Cammy . . .

You don't even mention what your Cash Surrender Value is. And I think you must believe it is equal to your $9900+ in premiums paid to date. It most assuredly is NOT that much. Perhaps $3,000-$4,000 at most. But you won't get all of that if you terminate the policy today.

There are several things to consider before simply surrendering your policy.

First, your employer-sponsored life insurance only lasts as long as your employment. If you terminate (or are terminated), you will have the right to continue to be insured, but not with low cost term. You would have to start a new whole life, or more likely, UL policy at your then-current age, which would probably be the same or higher cost compared to what you now have privately. Most agents, including myself, counsel folks who need life insurance but are only insured through an employer-sponsored plan to obtain an individual policy, like you have done. But not necessarily a UL policy.

Second, your UL policy has surrender charges (for up to 15 or 16 years) that will eat into a substantial portion of your cash value at this point. You must read the contract to know how much you will lose by terminating your insurance now. However, whether you obtain new insurance through your employment (probably only available during an open enrollment period, which might be several months away from now) or not, you should not terminate your existing insurance without something to replace it in force first. A 30-year $250,000 level premium level term life policy for someone your age would probably cost between $350 and $450 per year. At age 66, if you still needed life insurance, to continue the term policy would be very costly because it would then be "annual renewable term", and the first year could cost up to $10,000 (and would be higher each year after that).

Third, your UL policy has the same problem built into it -- not at age 66, but beginning at age 31. You need to obtain an INFORCE illustration from the insurance company to see exactly how well the $165 premium is funding your policy today, and for the future. UL only works properly when maximum funded in most of the early years, and $165 per month is not maximum funding for such a policy. It may not be entirely sufficient, in which case you would have to decide whether to bite the bullet and terminate your policy or pay more money to manage it properly. You have to reevaluate a UL policy each year when the company sends you the Annual Statement (or Report), and determine whether you can continue paying the "planned premium" or if you need to pay a higher amount..

Don't make any rash decisions until you have considered these things, and more.

For example, you don't even indicate what your need for insurance is. Are you married, single, a parent? Who would be financially harmed if you died today? And to what extent?

How did you decide to purchase $250,000 of insurance at age 31? Did an agent convince you that putting money into your 401(k) was not as beneficial as putting money into a IRA or employer-sponsored retirement plan. It's possible that you could have the basis for a lawsuit to recover your premiums.

There are many factors which are not seen in your post that are important when it comes to making decisions about life insurance needs and coverage types.

Posted: Thu Apr 09, 2015 01:42 pm Post Subject: Surrender my Whole Life policy and invest proceeds?

I am 75 yrs old and my $60,000 whole life policy has a surrender value of $27,000 right now, but according to the Insurance Company projection my policy will lapse to $0 value in 13 years when I will be 83 due to the increasing "cost of Insurance".
I am in good health and otherwise financially secure. I think in my case it might be wiser to invest the proceeds of the policy in a blended mutual fund and continue to make contributions to the fund monthly, equivalent to my insurance payments.
What do you think?

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