Pros & Cons of Surrendering a Life Insurance Policy

Permanent life insurance policies have a savings component in which premiums are invested and cash value builds up over time. If you surrender the policy, the cash value is returned to you.

Function

You might consider surrendering a policy if you no longer need life insurance or if you have no other sources of needed cash.

Features

Most permanent policies allow you to take withdrawals or loans against the policy, allowing you access to cash while still having the protection of life insurance coverage.

Time Frame

Because cash value builds slowly at first, you will not receive very much if you surrender the policy in its early years.

Considerations

While much of your surrender value will be the return of premiums you've paid, any gains on investments will be subject to income taxes.

Warning

If you find you need to purchase new life insurance after surrendering a policy, you will likely pay much higher premiums because of age or declining health.

References

• Cash-Value Life Insurance Policies