Surrender Meaning

What Does Surrender Mean in Insurance?

Why Might a Policyholder Choose to Surrender a Policy?

• Financial Needs

  If the policyholder is in need of immediate funds, they may choose to surrender the policy to obtain its surrender value.

• Change in Financial Situation or Goals

  If the policyholder's financial situation or goals change, they may no longer need or want the policy and may choose to surrender it.

• Unaffordable Premiums

  If the policyholder can no longer afford the premiums, they may opt to surrender the policy instead of letting it lapse due to non-payment of premiums.

However, surrendering a policy should be a last resort as it can have significant financial implications, including loss of coverage and potential loss of a significant portion of the premiums paid.

When Can a Policy Be Surrendered?

What are the Implications of Surrendering a Policy?

Surrendering a life insurance policy has several implications:

• Loss of Coverage

  Once a policy is surrendered, the insurance coverage ceases, and the insurance company is not obligated to pay any death benefit.

• Surrender Charges

  The surrender value that the policyholder receives is usually less than the total premiums paid because the insurance company deducts surrender charges. The surrender charges can be significant, especially if the policy is surrendered in the early years.

• Tax Implications

  The surrender of a policy can have tax implications. In some cases, if the surrender value exceeds the total premiums paid, the excess may be considered taxable income.

In conclusion, giving up a life insurance policy has serious repercussions even if it can give you access to money right away when you need it. Therefore, before choosing to cancel an insurance, it is crucial to thoroughly weigh all of your options and perhaps consult a financial counsellor.