Variable universal life is a type of insurance policy known as "permanent insurance." This means that as long as the premiums are paid in accordance with the contract terms, the policy will pay benefits upon the death of the insured, regardless of how long that person lives. Variable universal life can also be used as a supplemental savings plan because it allows investors to invest in mutual funds in a tax-deferred structure. Surrendering the policy requires you to understand the applicable fees and taxes.
Things You'll Need
- Insurance policy
- Recent statement
Contact the insurance agent who maintains your policy or a customer service representative at the insurance company.
Request an account of all premiums paid into the policy as well as the existing cash value. Add all the premiums together and subtract this total from the cash value. This is the amount that will be added to your income taxes. The premiums are not taxed since they are after-tax dollars.
Review whether you have completed the contract terms for the surrender period. The surrender period is part of any variable whole life policy and requires that you maintain the account or pay a penalty for withdrawal. A variable whole life policy may have a surrender period extending out as far as 15 years and starting at a 15% surrender charge, dropping a percentage each year.
Calculate any surrender charges. If you have a $100,000 cash value with a 2% surrender charge, you will have $2,000 taken from the account.
Obtain a surrender form. Fill it out and sign it. Make a copy of the form and your policy for your records.
Submit the surrender form and policy to the insurance company. It should take approximately 10 days to receive the check, minus any surrender charges and taxes you chose to have withheld.
Tips & Warnings
- When speaking with the insurance agent, ask to have all assets moved to cash if you are concerned about major fluctuations in the cash value during the time between submitting the form and the account's liquidation.
- If your cash value is less than your premium payments, you will not be able to take a loss on the investment. This is the rule for a tax-sheltered structure; the gains are treated as income, and the losses are negated.
What Is Life Insurance Cash Surrender Value?
Life insurance comes in two main flavors: term and permanent. A term insurance policy provides coverage for a fixed number of years,...
Tax Implications of Life Insurance
Life insurance policies are temporary or permanent policies. Term insurance policies are temporary policies, they last for a specific period, or term....
Life Insurance Policy Account Value Vs. Surrender Value
All permanent life insurance products are designed to accumulate cash value over time. However, insurance contracts are specifically written to protect the...
Taxes When Cashing Out a Life Insurance Policy
The most obvious benefit to life insurance is the death benefit -- what your beneficiaries receive when you die. However, some policies,...
Variable Appreciable Life Insurance Policy
Of the many types of life insurance, a variable appreciable life insurance policy offers the policy owner a choice of investment options...
How to Surrender Life Insurance Policy
If you decide that your life insurance policy is no longer necessary, you can easily cancel your coverage and avoid any future...
- How to Calculate the Cash Surrender Value
Guaranteed Cash Value Vs. Net Cash Value Life Insurance
Cash values, more properly called cash surrender values (CSV), are features of permanent life insurance products that include whole life, universal life,...
Are Surrender Charges Tax Deductible?
If you want to surrender, or cash in, an annuity or a permanent life insurance policy, you may have to pay a...