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 Feb 04, 2016 03:40 pm Post Subject: Surrender value of policy no 416616097

What will be the surrender value of policy no 416616097 at the end of march 2016

Posted: Mon Feb 15, 2016 06:13 am Post Subject:

$0 in the United States. Have to contact the insurance company in India for a better answer. We are not your insurance company.

Posted: Thu Mar 24, 2016 05:02 pm Post Subject: Surrendering a life insurance policy

I am attempting to surrender a $2000 whole life insurance policy that my dad took out on me when I was a kid. Total premiums paid in was more than what the surrender value is. I have filled the forms from American General 3 times and have plainly noted I elect not have any fed or state taxes withheld. American General claims I need to submit a Georgia specific "opt out form" for this election. What is the form and where can I obtain it?

Posted: Mon Mar 28, 2016 01:14 am Post Subject:

If American General claims there is a form you need to complete. they need to supply it to you. Ask them for it, or contact a local American General agent to get it for you. If premiums paid are more than the surrender value, there is absolutely no tax liability.

Posted: Wed Mar 30, 2016 10:41 pm Post Subject:

In-law is 94 year old & has a life insurance policy. The death benefit is $10,000. Premiums are $600. a year.
Has already paid $27,000. over the years. Is there any way premiums can stop since premiums paid are almost 3 times the potential benefit and still retain benefit to heirs? This is a Met Life insurance policy. Not sure what type of policy it is (whole life, universal,etc)

Posted: Fri Apr 15, 2016 03:55 pm Post Subject:

Not sure what type of policy it is (whole life, universal,etc)

When you have an answer to this statement, contact me. Until then, you have no idea what stopping the premium payments will mean. Just because the stated death benefit is $10,000 doesn't mean the policy is worth more or less.

Your math, however, could be entirely faulty. It would take 45 years at $600 per year to equal $27,000. Universal life insurance hasn't been around quite as long as that, so if this is a cash value policy, the premiums are either too high or the cash value is much higher than the face amount of insurance.

Get your facts before you make any dumb decisions for your "in-law"..

Posted: Fri Apr 29, 2016 10:41 pm Post Subject: When it is good to surrender a policy

We have life insurance policy in affect until my husband turns 70. He is now 65. Should we continue, or should we consider surrendering the policy? Is there a checklist of questions to assist us in our decision?

Posted: Thu May 05, 2016 03:19 pm Post Subject: reduced paid up insurance

my husband is 88 years old still paying 32.50/mo on a
$5640 policy thinking of taking reduced paid $4640 been
paying for 24 years sbli insurance good idea no more payments and will still get if ever dividends

Posted: Thu Aug 18, 2016 07:03 pm Post Subject: Surrender Policy

Life insurance surrenderind

Posted: Tue Oct 18, 2016 04:47 pm Post Subject: cancelling life policy over 50

how do i cancel me and my wife's over 50 policy i have canceld them in the bank what else do i need to do

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