Surrendering Life Insurance

• When you have a cash-value life-insurance policy, such as a whole-life insurance policy, the insurance company allows you to surrender it at any point. By surrendering the policy, you cancel the insurance benefit and take the amount of cash value that is remaining in the policy. When you do this, you receive a check from the insurance company for the cash value and the policy ceases to provide a death benefit.
  
  

Cash Value

• Part of your premium payments is applied toward the policy's cash value. The insurance company takes a portion for profit and management fees; the rest goes into an investment fund that is administered by the insurance company. The cash value of your policy grows both when you make payments and when the investment fund grows because of investment gains.
  
  

Paying Taxes

• When you surrender your life insurance policy, most of the money that you receive is not taxable. The majority of that money is what you have paid in premiums. Because you already paid taxes on this money, you do not have to pay taxes again unless the amount received is more than you originally paid to the policy in your premiums.
  
  

Considerations

• Because most insurance-policy withdrawals are not taxed, some use this as a method of saving for retirement. While this strategy can provide you with some tax-free money at retirement, it is often not as much as you could receive from other qualified retirement plans, such as a Roth Individual Retirement Account, or IRA. With a Roth IRA, you have the option to invest and earn returns in excess of what you could earn through an insurance policy.