Should You Surrender Your Life Insurance Policy for Cash Value?

Did you know you can sell all or a portion of a life insurance policy, even term insurance?

(8 minute read) `

So, your life has recently changed and you’re looking into different options for your life insurance policy. Surrendering is one option, as well as the potential of selling the life insurance policy. If you’re wondering if you should surrender your life insurance policy, we’ve put together this comprehensive guide. You’ll find information about what surrendering is, how to calculate the cash surrender value of life insurance, and more information about the alternatives to surrendering. Let’s get started. 

What Does It Mean To Surrender Your Life Insurance Policy?

When you surrender your life insurance policy, you are essentially canceling it. The insurer terminates your coverage and sends you a check with the cash surrender value. You can surrender your policy at any time, and this does not affect your ability to sign up for a new life insurance policy in the future. 

What Happens When You Surrender a Whole Life Policy? 

Once you make the decision to surrender a life insurance policy, you will need to contact your insurer to do so. They will cancel your policy, and you will no longer be responsible for paying the premiums. In addition, they will calculate the cash value based on their formula for the type of policy and your specific circumstances. They will also take into account any surrender fees and deduct them from the surrender value. 

What Happens When You Surrender a Term Life Insurance Policy?

You can surrender your term life insurance policy, but you will not receive any money for taking this action. The major benefit of surrendering term policies is that you will no longer have any premiums to pay. However, you will have lost any premiums you already paid.

In general, each type of life insurance policy has a different surrender value. Before deciding on whether or not you’d like to surrender your policy, you should understand all the implications of that choice. 

Why Would You Choose To Surrender Your Policy?

There are many reasons why someone might want to surrender their life insurance policy. These include circumstances like: 

  • Your premiums have become a financial burden. 

That life insurance premium comes regularly, and bills pile up all too quickly. When life insurance premiums become unaffordable, you may want to lapse or surrender your policy in order to relieve the pressure on your bank account. Surrendering your policy is one viable option, but you do have other options you can pursue. We will cover life settlements as an alternative later in this guide. 

  • You need access to immediate liquid assets. 

Unexpected expenses can crop up like medical bills or even an opportunity to take a once-in-a-lifetime trip. You might need an immediate influx of cash to help cover these costs. Surrendering your life insurance policy for a one-time lump sum can be the answer for some folks. 

  • Your life plans have changed. 

Situations shift, and the policy you purchased years ago may not suit your current needs. For example, you may have invested in a life insurance policy intending it to pay for loss of income or end-of-life care. In the years that have passed since, though, you may have gotten divorced or been widowed and no longer need that coverage.

These are just a few examples of why someone might want to surrender their policy. Whenever you make a big decision like this, it is important to consult your financial advisors, wealth management, and tax advisors to determine that you’re making the right financial decision.

What Is the Cash Surrender Value of Life Insurance?

The cash surrender value is the money that you will receive when you cancel your policy. In order to understand this, let’s first take a look at what the difference is between the cash value and the surrender value of life insurance.

What Is the Cash Value? 

The cash value is the total sum of the money held in your account. When you pay your premiums, your insurance company invests some of it into things like a bond portfolio and then credits your account with any profit from these investments. So, your cash value includes the premiums you have paid and any additional dividends that have been credited to your account. For some policies, you may be able to borrow against or withdraw a part of the cash value. 

What Is the Surrender Value?

The surrender value is the sum of money that you receive when you surrender your policy. In some cases, you will receive the total cash value. However, there are many instances where you will receive less than the cash value. This depends on the type of policy you are surrendering, the length of time you have held it, and the surrender fees that your insurer levies. You will typically have surrender fees for the first 10-15 years of a whole life or universal life insurance policy. 

In general, older policies have higher surrender values. This is because policies usually take a long time to build cash value. For the first 10 years, your cash value may not have much movement. However, after 20 or 30 years, your cash value will grow much quicker. The other factor is the surrender fees. Older policies tend to have lower (or no) surrender fees. These two variables will affect how much money you will receive for your surrender value. 

How Much Is the Cash Surrender Value of Life Insurance?

It depends on how much you have paid into your policy and the investments that your insurer has made. These are sometimes referred to as the guaranteed surrender value and special surrender value.

  • Guaranteed Surrender Value is 30% of the premiums you paid, excluding the first year of making payments. Between the fourth and seventh year of holding the policy, this goes up to 50%. After the seventh year, the insurance company will have to make unique calculations based on your circumstances. Generally the guaranteed surrender value is available after three years of holding the policy. 
  • Special Surrender Value is the sum of your paid premiums as well as dividends from investments and any bonuses. You will typically only see a special surrender value if you have held your policy for a long time. 

Remember: term life insurance policies do not have any surrender value!

How Do You Calculate the Cash Surrender Value of Life Insurance?

You may see things online like a “life insurance cash surrender value calculator” that can give you a general idea of how much money to expect. However, your cash value is unique and influenced by the type of policy you hold, your premium payments, specific insurer terms, and any loan balances. The best way to determine how much your surrender value will be is to contact your issuing company. 

What Is the Average Cash Surrender Value of a Life Insurance Policy?

On average, the surrender value of a life insurance policy is $460 for every $100,000 in value. This amount is quite low compared to the benefit. Due to this poor return, many people look into alternatives to surrendering life insurance policies to maximize the lump sum they receive. One such alternative is a life settlement, a process of selling the policy that will give you a better return. 

Do You Have To Pay Taxes on a Cash Surrender Life Insurance Policy?

The cash surrender value of life insurance can be taxable. You may be required to pay taxes when you surrender a life insurance policy. If you receive money from the surrender value that came from interest or investment gains, that portion can be taxed. This is typically treated as income and taxed as such. Be sure to consult with your tax advisor to learn how surrendering your life insurance policy may have tax consequences.

Is It Smart To Surrender a Life Insurance Policy?

It depends on your specific situation. If you’re asking yourself, “should I surrender my life insurance policy?” it may be worthwhile to examine the advantages and disadvantages of surrendering a policy. 


  • Surrendering a life insurance policy can be quite quick and simple. Your insurance company knows exactly how to handle this situation, and has done this process many times before. They will send you an offer and you can accept and get your check. 
  • There will be no more premiums to pay. 
  • You will get some return on your investment when you surrender your policy (as long as it is not term life insurance). Rather than letting your policy lapse and losing all of the money you put in, you’ll at least get a small portion back. 


  • You may have to pay surrender fees which come out of your cash value, lowering the amount you will receive. 
  • Surrendering your policy typically gives you a minimal return, up to 10% of the money you are slated to get.
  • In general, this process gives you limited choices. You are dealing only with your insurer, who will usually give you just one offer. You’re limited to either accepting the offer they give you or rejecting it and continuing to pay your premiums (or let your policy lapse and get no return). 

Are There Any Alternatives To Surrendering a Life Insurance Policy?

Yes, one popular alternative is a life settlement. This process involves selling your policy to a third party. The buyer will take over paying the premiums and will receive the death benefit when you pass. In return, you will receive a one-time cash payment.  

There are two types of life settlements, each with their own qualifications. 

  1. Life settlements are for seniors who are 65+ with a medical change since their policy was issued and a life expectancy of fewer than 15 years. Your policy should be $100,000+. 
  2. Viatical settlements are for terminally ill people with a life expectancy of two years or less.

A life settlement gives you more flexibility than surrendering your policy because you can take your policy to the market and get several offers. While you won’t have to pay any surrender fees, your broker will have a commission that comes out of the final settlement. 

How Much Cash Can I Get From My Life Insurance Policy With a Life Settlement?

Like surrendering your policy, the amount you will receive from a life settlement will vary depending on your specific circumstances. However, selling a policy can give you 4 to 8x more than the cash surrender value. The reason for this is simple—if an investor buys your $900,000 policy for $200,000, that $700,000 is the potential return on their investment. You, meanwhile, would receive that $200,000. For the sake of comparison, if you surrendered that same policy, you would receive around $4,000 (using the average surrender value to calculate). This is just a small example to help you understand the benefits of a life settlement. In general, any major financial decision should not be taken lightly. Be sure to consult your financial advisors about the implications of any action regarding your life insurance policy.

Explore Your Options With Life Settlement Advisors

Here at Life Settlement Advisors, we are passionate about helping our clients make informed decisions about their life insurance policies. Our goal is to educate you about the life settlement process so you can decide whether it is right for you. Learn more about the qualifications associated with selling a life insurance policy today.

Did you know you can sell all or a portion of a life insurance policy, even term insurance? Selling an unwanted life insurance policy is no different than selling your car, home, or any other valuable asset that will create immediate cash. Contact us today to learn more.

Get in touch with Life Settlement Advisors today to take the first step toward converting your policy into cash.

Leo LaGrotte
Life Settlement Advisors 

Get in touch with Life Settlement Advisors today to take the first step toward converting your policy into cash.
Life Settlement Advisors
Leo LaGrotte
At Life Settlement Advisors, we strive to be a voice of confidence and assurance for our clients. Our goal is to educate you about the life settlement process so you can make an educated decision about whether it is right for you.