What is a Surrender Charge and How Does It Impact Your Policy?
Definition & Meaning
A surrender charge is a fee that a life insurance policyholder must pay when they cancel or surrender their life insurance policy or annuity for its cash value. This charge reflects the costs incurred by the insurance company for maintaining the policy, including administrative expenses. Sometimes referred to as a surrender fee, this charge may be waived under specific conditions, such as when the policyholder notifies the insurer in advance and continues to make payments for a set period before the cancellation.
Legal Use & context
Surrender charges are commonly encountered in the realm of life insurance and annuities. They are relevant in civil law, particularly in insurance contracts. Understanding surrender charges is essential for policyholders who may wish to access their cash value before the policy matures. Users can utilize legal templates from US Legal Forms to manage the cancellation process effectively.
Real-world examples
Here are a couple of examples of abatement:
Example 1: A policyholder decides to surrender their life insurance policy after five years. The policy specifies a surrender charge of 10 percent of the cash value during the first six years. Therefore, if the cash value is $10,000, the surrender charge would be $1,000.
Example 2: A policyholder informs the insurer about their intention to cancel the policy 30 days in advance and continues to pay premiums during this time. As a result, the insurer waives the surrender charge, allowing the policyholder to receive the full cash value. (hypothetical example)