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Surrendering a whole life insurance policy means giving it up. You ‘surrender it’ for the cash. This works with whole life and universal life policies since they both accrue a cash value.

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But it may not be as much cash as you think. Understanding how the process works is important, so you can make the right decision before giving up your life insurance policy.

What Does it Mean to Surrender a Life Insurance Policy for Cash Value?

If you surrender a life insurance policy for cash value, you essentially give up the life insurance. In other words, you forgo the death benefit for your loved ones. If you die, they will no longer have this policy to lean on for financial support, but you will have the cash accrued from the investment.

If you no longer need the life insurance policy or can’t afford it, surrendering it for the cash value may be necessary, but it’s essential to explore all options before deciding.

Reasons to Surrender a Life Insurance Policy

Ideally, if you need money, you should borrow from your life insurance policy’s cash value rather than surrender it, but sometimes surrendering is the only option, such as in the following situations:

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  • You can’t afford the premiums
  • Your beneficiaries no longer need the coverage (this often happens when children become adults and are financially independent)
  • You got divorced and don’t need to protect a spouse any longer
  • You found cheaper insurance

How Much Cash will you Receive?

Whole and universal life insurance policies incur a cash value. A part of your monthly payment goes toward the death benefit and the other part to your cash value. The money gets invested as you directed and grows tax-free.

When you surrender your policy, you may receive some cash value back, but none of the death benefit or the premiums to cover it. But there’s another catch.

You probably won’t receive the full cash value – depending on how soon after taking out the policy you surrender, you may pay a hefty surrender fee. The less time you’ve had your life insurance policy, the higher the fee will be.

How to Surrender a Life Insurance Policy

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To cancel or surrender your life insurance policy, use these steps:

  1. Call your insurance company and tell them you would like to surrender your life insurance policy for cash value.
  2. Stop making the premium payments.
  3. Complete the surrender form the insurance company sends you. Just telling them you want to cancel isn’t enough. They need it in writing with your signature first.
  4. Follow all instructions provided by the insurance company – some require a written letter to cancel the policy. Send all correspondence via trackable mail so you can confirm receipt.
  5. Follow up with the insurance company to ensure they canceled your policy and ask when you’ll receive your surrender value.

Alternatives to Surrendering a Whole Life Insurance Policy

If you don’t want to give up your whole life insurance policy but need access to the cash value, there are a few ways to access it and keep your death benefit intact.

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  • Withdraw a portion of the cash from your policy – If you take only a part and continue paying the premiums, your death benefit stays intact. The amount of money you withdraw from the cash value, though, directly reduces the death benefit dollar for dollar.
  • Borrow from your policy – Rather than withdrawing cash from your policy, you can borrow from the balance. While it feels the same (you receive cash in hand), you have to pay it back when you borrow. Of course, you pay yourself back, but you’ll still pay interest to make up for the interest loss from the money you borrowed.

What Happens when you Surrender a Life Insurance Policy?

When you surrender a life insurance policy, you give it up. Again, your loved ones won’t have coverage unless you have another policy or surrender this policy for another. Before you surrender, make sure you have enough money set up somewhere, whether in an annuity, savings account, or other investments, to help your loved ones with your final expenses and leave them with any legacy you intended.

What is the Difference Between Cash Value and Surrender Value of Life Insurance?

Don’t get confused with your policy’s cash value and surrender value. The cash value may seem enticing. You see the value and think you could do a lot with that money and would prefer that it not just sit there untouched.

But if you surrender, you don’t receive the entire amount. For example, if you surrender your policy within the first year, you’ll likely pay a 10% surrender fee. Since you probably won’t accumulate a significant cash value in the first year, you wouldn’t walk away with much.

Each year that passes, the surrender charge usually decreases 1% until you hit year 10, and there is no more surrender fee.

The only way to avoid the surrender charge is to take out a term life policy. If you think you only need coverage for a specific period, consider a term policy that expires on a specific date. Then you don’t have to worry about surrendering and can invest the money elsewhere.

Bottom Line

Before you surrender a whole life insurance policy, look at your options. Ask yourself why you’re abandoning it. Do you need the cash? If so, do you have other investments set up to take care of your loved ones should you die?

If not, consider your alternatives – a loan or even cash withdrawal. This keeps the insurance policy intact, protecting your loved ones while giving you access to the cash you need. Your cash value is there for you to use it – otherwise, the life insurance company absorbs it when you die, but going about it the right way is important, so you make the most out of 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.