How to Surrender a Taxed Life Insurance Policy
Life insurance policies are structured to have the policy cash value grow under a tax-deferred umbrella. Premiums paid into the policy have already been taxed and will not be taxed again, but earnings are subject to income tax regulations. Surrendering a life insurance policy is a simple process, but you need to understand where fees are applied to prevent any surprises in cash or taxes.
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Instructions
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Contact your life insurance carrier. You may do this by phone or visit the agent who sold you the policy. The phone number and location address should be on your policy face page or on a recent statement.
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Review the terms of the policy with the insurance company representative. You want to know exactly how much was paid in premiums and what is the cash value of the policy.
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Subtract the aggregate premium from the cash value amount to determine the amount of income that will be taxable.
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Establish where you are in the term of the life insurance policy. Life insurance policies require that you maintain the policy for so many years. The term defines the surrender period, which is a fee paid to cancel a policy before the contract terms are met. For example, if you own a policy with a 15 year surrender period, the surrender schedule may start at 15% in year one and drop one percent each anniversary date. If you have owned the policy for 14 years, you might be assessed a 2% penalty on the entire cash value for surrendering it.
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Request a surrender form from the representative. Fill the form out, sign it and make a copy of it and your policy. Choose whether you want to have taxes withheld from the surrender value or to take the entire value and pay the taxes when you file your annual return.
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Submit the form with the policy to the insurance company. You will receive a check less any surrender charges. If you elected to have taxes withheld, this amount will be deducted as well. A check should arrive within ten days.
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