How much do I get back if I surrender?

How it works

the cost that never appears on a statement

Opportunity cost, and why it stays invisible

1. 01The value of the alternative you gave up
2. 02The one real cost that never appears on a statement
3. 03A comparison is incomplete until the alternative is named
4. 04Every decision about capital carries one

Ask the insurer for a quotation rather than reading an old illustration. It will state a figure for today and one for each of the coming years, with the guaranteed column shown apart from anything projected on top. Only the first column is owed to you.

The insurer arrives at that quoted figure by taking the contract's reserve for the policy year in question, which its actuaries set out in the product's cash value schedule at the time the contract was designed, and then subtracting any surrender charge still running under that same schedule and any amount currently outstanding against the contract, including an unpaid advance and its accrued interest. Nobody outside the insurer performs this calculation, which is exactly why a figure taken from an old illustration is unreliable: the schedule inside that illustration was correct on the date it was printed and drifts further from the current truth with every year that passes.

The cost or the catch

planning one leaves the other open

Two halves of an owner's retirement

1. 01No pension and no employer match
2. 02Most of the wealth sits in one illiquid asset
3. 03Building assets outside the business
4. 04Arranging an exit that turns the business into money
5. 05Planning only one half leaves the harder one open

Households routinely arrive at this question expecting their premiums back and find a shortfall running to five figures. Saying so is not a reason to stay. It is the reason to obtain the number before the decision rather than after it, because the decision cannot be taken back.

In the earliest years of many designs, the guaranteed cash surrender value is very small or shows as nothing at all, because the acquisition cost of putting the contract in force and the cost of the coverage itself are charged before any value accumulates for the owner. A household surrendering in year two or three should expect to receive little to nothing above what has already been consumed by those charges, regardless of how much was paid in. The figure the insurer quotes is also a figure before tax, and if the amount received exceeds the contract's adjusted cost basis, the difference is included in income for the year of surrender, which can arrive as an unwelcome surprise in a year when the household is already short of money.

What changes the figure, and what to ask

The surrender value on any given date depends on the insurer that issued the contract, since each company sets its own reserve basis and its own surrender charge schedule inside its product filing. It depends on the design chosen at issue, since a contract funded through optional deposits or paid up additions accumulates value on a different path than one carrying the base premium alone. And it depends squarely on the year, since most surrender charge schedules decline over time and the gap between the guaranteed figure and total premiums paid narrows the longer the contract has been in force, though it rarely closes as quickly as an owner expects.

The question to put to the insurer, through the Financial Security Advisor or directly, is a written quotation current to the day, not a percentage or a rule of thumb, stating the guaranteed cash value, any surrender charge still applying, and any amount outstanding against the contract. The separate question, for the reader's own accountant, is what the adjusted cost basis is on that same date, since that is the figure the tax result actually turns on and the insurer's quotation does not itself state whether tax is owed.

Who this matters to, and what it leaves out

what a rider actually buys

The paid-up additions rider

1. A small block of fully paid whole life coverage
2. Bought with a declared dividend or an extra deposit
3. It needs no further premium once it is purchased
4. It adds to both cash value and death benefit
5. The rider carries a maximum set by the exempt test

This question matters most to an owner actually considering surrender soon, particularly one in the early years of a contract or one carrying an outstanding advance against it, since both circumstances widen the gap between what was paid in and what would be received. It matters least to an owner who intends to hold the contract to the death of the life insured and has no plan to surrender it, since for that owner the surrender figure is never realized and the death benefit is the number that eventually matters instead.

What this page does not tell the reader is the dollar figure for a specific contract on a specific date, since only the insurer's own quotation, requested in writing, produces that. It does not calculate the tax owing either, since that calculation depends on the adjusted cost basis and other facts specific to the contract, a question for the reader's own accountant. And it does not weigh whether surrendering is the better choice against the other routes available on a contract that can no longer be funded, a judgment the Financial Security Advisor works through with the reader rather than one a general page can resolve. That advisor is compensated by commission from the insurer, which is disclosed here because it is relevant to any comparison between surrendering and continuing the contract.

Step by step, from the request to the payment

The sequence starts with the owner's written request to surrender, sent to the insurer directly or through the Financial Security Advisor. The insurer's administration department then pulls the contract's current values as of that day, applies any surrender charge still running under the schedule filed for that product, deducts any amount outstanding against the contract, and produces a net figure together with a statement of the adjusted cost basis used to determine whether any of the proceeds are taxable. Only once the owner confirms the request in writing, usually on the insurer's own form, does a payment actually issue, and that payment typically arrives by cheque or direct deposit within a period the insurer states at the time of the request rather than immediately.

Nothing in this sequence is performed by the Financial Security Advisor, whose role is limited to requesting the quotation, explaining what each figure means, and passing along the paperwork once the owner has decided to proceed. The insurer alone determines the final net figure and alone issues the tax slip the following year if any portion of the proceeds is included in income. An owner who wants to see the number before committing to anything can request the same quotation without submitting the surrender request itself, since the two are separate steps and asking for the first does not commit anyone to the second.

A quotation obtained today is not a promise about tomorrow, since the guaranteed cash value schedule itself does not change but the surrender charge still running against it declines with each additional year in force, meaning the same request repeated a year later will show a somewhat different net figure even if nothing else about the contract has moved. Where the contract also carries paid up additions purchased over the years, those additions typically have their own smaller surrender value layered on top of the base guaranteed figure, and the insurer's quotation should show that layer separately rather than folded into a single total, since the two can behave differently as the contract ages. An owner comparing surrender against one of the other routes available on a contract that can no longer be funded should request all of the relevant figures on the same day, from the same source, rather than mixing figures obtained months apart. Where the contract is held jointly, or where more than one party has a registered interest in it, each of those parties is generally entitled to request the same figures independently, and confirming that in advance avoids a disagreement later about who was told what.