Comparing Surrender vs. Policy Loan: Which is Better for Accessing Cash?

When a Permanent Life policyholder needs liquidity, the decision often comes down to two choices: surrender the policy or take a policy loan. These are fundamentally different actions with vastly different long-term consequences on your finances and estate plan.

Policy Loan: Temporary Access, Permanent Coverage

A policy loan is a short-term solution where you borrow money using the cash value as collateral. Key outcomes:

• Policy Remains In Force: Coverage continues, and cash value often continues to grow.
• Tax-Free Access: Loans are generally tax-free (assuming the policy is not a MEC).
• Reduced Death Benefit: The outstanding loan balance is subtracted from the death benefit payout.

Policy Surrender: Permanent Termination

Surrendering the policy is a permanent exit. Key outcomes:

• Coverage Ends: The death benefit is lost forever.
• Potential Tax Liability: Any gain (CSV exceeding total premiums paid) is immediately taxable as ordinary income.
• Loss of Future Guarantees: All future guaranteed growth and fixed premiums are forfeited.

Disclaimer: This content is for informational purposes only and is not financial or legal advice. Surrendering a policy should be a last resort. Consult your financial planner before accessing cash.