What does the phrase ‘surrender your life insurance’ mean?

UPDATED: Jan 2, 2014

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Asked January 2, 2014

1 Answer


Surrendering a life insurance policy essentially means that you cancel it. Unless your insurance company has agreed that terminating the policy is mutually beneficial, you will be charged surrender fees. If you have paid premiums in advance, the fees will be deducted from that amount before a refund check is issued. Typically, surrendering the policy is done at the discretion of the policyholder, not in conjunction with the insurance company.

If you are surrendering a term life policy, the insurance company may waive the right to charge early termination fees. Read your policy carefully, and it will provide you with the penalties for surrendering the policy, if there are any. Remember, a life insurance policy is a legal contract, and surrendering the policy amounts to defaulting on the contract. Before you cancel a term life policy, look at the length of the term remaining, and consider whether it is financially appropriate to give up the policy at this time.

If you are surrendering a permanent life insurance policy with a cash value, the surrender fees will be deducted from the cash value before a check is issued for the remaining amount. The cash value in a policy is yours, and has been accrued through your premium payments as well as earning interest on the accrued amount. If you have an outstanding loan against the cash value of the policy, that loan must be settled before the policy can be surrendered. If there is enough accrued value in the account to pay off the loan, will be deducted from there, otherwise you are responsible for paying off the loan plus interest before the policy can be terminated.

Surrendering a life insurance policy should be done as a last resort. Because it means you are defaulting on an insurance contract, you may have difficulty getting another life insurance policy. Possible reasons for surrendering a life insurance policy include a loss of income, reducing or consolidating your life insurance portfolio, or irreconcilable differences with the insurance company.

Answered January 2, 2014 by Anonymous

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