When should you surrender your life insurance policy?


Perhaps your life situation has changed and you no longer need your life insurance policy? There could be many reasons driving your decision although you might want to consider all your options before surrendering your life insurance policy. If you do decide to cancel your life policy then you would receive whatís known as the cash surrender value

When to Ask for your Cash Surrender Value?

First, it’s worth knowing what a surrender value cash actually is. It’s actually relatively simple because it’s the number of premium payments you’ve paid to date. Your insurance company will probably remove some surrender charges. Then again, if you give them some warning, you can usually agree to a termination period during which you pay your premium payments. This then covers the surrender charge but it’s up to you how you want to approach that and if you prefer just receiving today’s surrender value of life insurance minus the charges.

Before you even consider getting your surrender value from your insurance company though, youíll need to think about how losing your death benefit impacts your dependents. Assuming this is something youíre ok with then here are some other reasons you might want to consider your cash surrender value:

  • Life changes and you donít qualify for a life settlement 
  • Relatively new policy
  • Low face value 

Life changes and you donít qualify for a life settlement 

Of course, life circumstances change. Perhaps you got a universal or whole life insurance policy to make sure your family could pay the mortgage and education fees after youíre gone? Today, you now find that everything is paid off and everyone in your family is self-sufficient. Combine this with facing a terminal illness and financial hardship and canceling your premium payments could be a good option. 

Itís worth noting that if you have a permanent life insurance policy then you might qualify for selling your life policy. Make sure you check the numbers and the criteria before you make any decisions. Thatís because generally, people get between 6 to 8 times their cash surrender value when they do a life settlement. 

Clearly, you have to qualify and not everybody does. For example, if youíre less than 70 and in good health, itís unlikely that any investors will want to buy your life policy. 

Relatively new policy

If your permanent life insurance policy is less than 2 years old then you wonít have built up much cash value. This limits your other options and also disqualifies you from doing a life settlement. 

Low face value 

Another key data point that life settlement companies look at is how much your death benefit cash payout will be. If itís less than $200,000, they probably wonít be interested. 

Other Options before Getting your Cash Surrender Value 

As mentioned, there are other options before you go ahead with your insurance company and collect your surrender value, as detailed below. Although, these are only applicable with a permanent life insurance policy: 

  • Borrow
  • Withdraw
  • Accelerated death benefit
  • Life settlement 
  • Tax 


Thanks to your cash value, you have a pot of money against which you can borrow. You can actually also borrow against your death benefit and in that case, your cash value acts as a guarantee. 


Another option is to take money out directly from your cash value. Due to the structure of a permanent life insurance policy, part of your premium payments have been contributing to your cash value. Some life policies also invest that money on your behalf so you can even earn interest. 

Accelerated death benefit

Letís not forget the value of your death benefit. Depending on the structure and age of your life policy you can also use the face value. Essentially, youíre getting some of your final payouts ahead of time. 

Life settlement 

Last but not least, as mentioned above, you can actually sell your life insurance policy in a life settlement process. Of course, you have to meet the criteria but this can be a good way to get more than your cash surrender value. Thatís because investors want to pay you to be able to access your final death benefit. 


Itís worth making a point about tax although each situation will be slightly different. Youíll therefore need to first confirm the details with your insurance company and possibly a financial advisor. Either way, the main structure is that anything up to the value of your premium payments is tax-free. Any amount above that, such as when taking out a loan on your life policy, is usually taxed. 

Key Takeaways when Considering Cash Surrender Value 

The decision to surrender or sell your life insurance policy is very much on a case-by-case basis. Youíll need to weigh up the numbers, check the criteria to qualify whilst also verifying the structure of your life policy. Some might have restrictions for example. Then again, you might also have some extra benefits that could also help you financially before making any major decisions. Regardless, there are options to leverage your life insurance policy so that it helps you today and not just in the future.