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When it comes to understanding life insurance, most of the premiums, charges, and fees are fairly straightforward. While the premium pays for the benefits of the policy, the charges and fees are generally about handling the policy itself.

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If there is a fee that might be confusing in nature, it is the surrender charges on life insurance policies. Although it is actually fairly simple in its effect, it is the type of fee that can catch many people off-guard or unaware of its full effect.

What is a Life Insurance Surrender Charge?

A life insurance surrender charge occurs when the life insurance policy is canceled and is levied against the policyholder. Basically, this is the fee that is designed to cover the cost of keeping the policy on the insurance company’s records. This is also known as a life insurance surrender fee, but the effect is the same.

Basically, once the policyholder informs the insurance company that they are canceling their policy the fee is to ensure that the company has its administrative costs of the policy covered. The size of the surrender charge will vary from the insurance company and will also depend on other factors as well which will be spelled out in the information sent by the insurance company to the policyholder.

A typical surrender charge starts at 10% of the funds collected in the first year and subsequently dropping by 1% each year.

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So, if you contributed $1000 in the first year, the surrender charge would be $100. After 10 years, many policies no longer have this charge. However, keep in mind that different insurance companies will have different policies regarding their surrender charges.

When the Surrender Charge is Levied and Waived?

To avoid paying the surrender charge life insurance policy, there are a number of different waivers available again depending on the parameters of the policy and insurance company rules.

Pay until Termination: With most policies, there is a time between when a policyholder announces to the insurance company that they are discontinuing the policy and when the policy itself is canceled by the insurance company. If the policyholder keeps paying the premiums until the insurance company makes the cancellation, then there are usually no fees.

Term Life: Surrender charges are part of whole life policies. If you purchase term life insurance then you will not face a surrender charge. This is because you are not building up any savings or investments with a term policy.

Window of Cancellation: Many insurance companies will establish a window of opportunity for their whole-life policyholders to cancel without facing a surrender charge. Usually, this window occurs on the anniversary of the policy itself. This will mean that a formal notification by the policyholder during that time or perhaps that they request that the policy itself terminates on the anniversary will mean not facing surrender fees.

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The life insurance surrender charge is something that can be avoided with a little planning ahead, so it is important that you read about the fees associated with your policy.


Meet Aaron H., a senior life insurance agent from California with 15+ years of experience. With a major in finance, excellent analytical and communication skills, and a passion for helping clients find personalized solutions, Aaron is a trusted advisor in the industry. He stays up-to-date on the latest trends and developments by attending webinars and workshops, reading industry blogs, and writing informative blog posts on this website. Aaron also has a keen understanding of SEO and online marketing, which he uses to help his clients reach a wider audience and get the coverage they need. He cherishes spending quality time with his wife, two children, and elder parents.