What is a Life Insurance Surrender?

What is a Life Insurance SurrenderSometimes, when we do an insurance review with a new client, we might discuss the possibility of surrendering a life insurance policy. This can feel like a confusing prospect for many – what does it mean? What does it entail?  And how do you do it?

In this article we’ll cover some of the basics of life insurance surrender and how to start the process of considering whether it’s a reasonable decision for you.

What is it?

Surrendering your life insurance policy means cancelling it completely. You might decide to do it if you simply don’t need coverage anymore (for example, the kids are grown and out of the house), if you’ve found cheaper coverage elsewhere, or if you need to access the cash value of your policy. In other cases, you might find that you need a different kind of life coverage.

As always, make sure to work with a qualified life insurance professional to check if this is the right course of action for you. Once you surrender a life insurance policy, you will not be able to get it back!


​Your Life Insurance Guide

The Basics on Life Plans

​Access Your Guide Below

How it works

To surrender your policy, you’ll typically either work with your insurance broker or contact your insurer directly.

You’ll need to fill out some paperwork, and if you face surrender charges (which may apply during a set period of time, for example the first 10 to 15 years of the policy), these will be calculated and billed. Should you have access to a cash balance, your surrender charges will usually be taken directly from that amount before distributing the balance to you.

Don’t forget about the possible repercussions

While surrendering a policy will not impact your ability to get a new one, any changes to your health could change the cost or difficulty you face in getting a new policy, should you need one.

You should also keep in mind that surrendering a policy means that your beneficiaries will no longer be able to access the death benefits within it. For some families this is fine and even preferable, but if you’ve been using your life insurance policy as part of the estate planning process you may want to consider alternatives.

What is a Life Insurance Surrender

Are there any tax issues?  

If you receive income from a cash balance in your policy, any income above and beyond what you paid in will be subject to income tax.  Be sure to speak with your financial advisor and/or accountant to figure out:

  • The amount of taxes you’re likely to owe
  • Any impact on your tax bracket
  • Possible ways to manage your overall tax bill

If you run your life insurance policy through a workplace plan, you may also want to consider your tax strategy for your business: this vary depending on the specifics of your policy and workplace, so we recommend reaching out to a qualified accountant.

How to know if a surrender is right for you  

Again, some common reasons for surrendering a life insurance policy include:

  • No longer needing it
  • Finding a better deal elsewhere
  • Accessing the cash value of the policy

The first two reasons are often simple enough, though we do suggest talking through these issues with your financial advisor or insurance broker. After all, there may be benefits to keeping your existing policy that aren’t obvious from the outset!

In terms of accessing cash value, it’s important to consider where the cash value of your policy fits into your overall financial picture, how it stacks up compared to other sources of cash, and what the long-term ramifications might be for your financial plan. These are big issues to think through – once again, once the decision is made it can’t be reversed!

A professional advisor can help you navigate the key questions and important considerations involved.

Need a life insurance guidebook?  

Our free guide to life insurance, Your Life Insurance Guide, helps you understand the vocabulary of life insurance policies. It’s an alphabet soup out there: don’t let it confuse you – download your free life insurance guide today!


​Your Life Insurance Guide

The Basics on Life Plans

​Access Your Guide Below

Let Us Help!

We can discuss this topic and more at a complimentary appointment. As a bay area retirement planning coaches, we can give you a review and make suggestions based on your retirement objectives.

What is a Life Insurance Surrender

Important Disclosures

The opinions voiced in this article are for general information only. They are not intended to provide specific advice or recommendations for any individual and do not constitute an endorsement by United Planners.

To determine which investments may be appropriate for you, consult with your financial professional. Please remember that investment decisions should be based on an individual’s goals, time horizon, and tolerance for risk. Neither diversification nor asset allocation can ensure a profit or prevention of loss in times of declining values. United Planners does not render tax advice.

Securities and advisory services offered through United Planners Financial Services, member FINRA, SIPC. Pasquale Vitucci, CA Insurance Lic. # 0758212, is an Endorsed Agent of Vitucci & Associates Insurance Services CA Insurance Lic. # 0I06319. Vitucci & Associates Insurance Services and United Planners are separate and unrelated companies.
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