While policyholders are often familiar with canceling or switching insurance carriers, surrendering life insurance is a less common concept. Surrendering life insurance involves giving up your policy entirely. But why would someone choose to do this, and under what circumstances is surrendering acceptable? Our agents at Boss Insurance Agency have explored the answers to these questions.
What Does Surrendering Life Insurance Mean?
Surrendering life insurance refers to canceling an active policy in exchange for its surrender value. This can only be done after the surrender period has passed but before the policy expires. The surrender value is calculated by determining the cash value of the policy and subtracting surrender fees and any outstanding debts, such as policy loans. These fees and debts vary depending on the carrier and plan. Once the policy is surrendered, it ends immediately, and you may owe taxes on the surrender amount.
The surrender value typically includes a portion of the premiums you’ve paid, along with any accrued interest. The exact portion depends on the policy and carrier. The surrender fee is influenced by the length of time the policy was active. If the surrender value exceeds the total premiums paid, the difference is taxable. However, if the surrender value is less than the premiums paid, you won’t owe taxes.
When Is It Acceptable to Surrender Life Insurance?
Surrendering life insurance should generally be considered a last resort, but there are situations where it may be appropriate:
- You can no longer afford to pay the premiums.
- You’ve found a more affordable life insurance plan.
- You’ve discovered life insurance with better coverage for the same or lower cost.
- You no longer need life insurance.
It’s important to note that surrendering life insurance solely for its cash value is often not a wise decision. There are alternative ways to access funds from your policy without surrendering it.
At Boss Insurance Agency, we want to ensure you surrender life insurance for the right reasons. Our team will guide you through the surrender process and help you retrieve your surrender value. If you decide to switch to a different life insurance plan before or after surrendering, our partner carriers offer a variety of coverage options to meet your needs. Contact us in Kingwood, TX, for more information about life insurance surrenders.
