Policies with Cash Value

• Two types of policies have cash value: whole life and universal life insurance policies. Whole life policies have a guaranteed cash value that accumulates over the life of the policy. Universal life policies have a fluctuating cash value that depends on an annual interest rate or value of investments within the policy. The cash value also depends on how much you pay in premiums. With universal life policies, the premium amount is flexible.
  
  

Surrendering Your Policy

• To surrender your policy, contact your life insurance company. The company likely requires a written request to surrender your policy, and there may be a form you need to fill out. You can request to surrender a policy only if you own the policy. The policy owner is the only person who can receive the cash value and the one responsible for any tax consequences.
  
  

Tax Consequences

• If the cash value you receive exceeds the amount of premiums you've paid, that difference is considered taxable income. If the amount of cash value is less than the premiums you've paid, no taxes are due. If your policy is a whole life policy, it's unlikely that the policy's cash value exceeds the premiums that have been paid in. With universal life, if your policy has had significant gains, there may be taxes due.
  
  

Considerations

• If you're surrendering a universal life policy, there may be surrender charges that lower the amount of cash value you receive. If you can't afford your insurance coverage but still want to keep some life insurance coverage, contact your insurance company and request a reduced paid-up policy. If you change your policy to reduced paid-up, you no longer owe any premiums, but your life insurance face amount is lower.