Impact of Policy Surrender Charges on Cash Value Liquidity

While the Cash Value component of Permanent Life Insurance is often highlighted for its liquidity, the reality of **Surrender Charges** significantly impacts how much cash can actually be accessed, especially in the early years of the policy.

Understanding the Surrender Charge Period

Surrender charges are fees the insurance company imposes if the policy is fully or partially surrendered during the initial contract period (typically 10 to 15 years). These charges cover the insurer’s substantial upfront costs, such as agent commissions and underwriting fees.

Liquidity vs. Surrender Value

The amount a policyholder receives upon surrender is the **Cash Surrender Value (CSV)**, which is the total Cash Value minus the Surrender Charges. In the first few years, the Surrender Charges can be so high that the CSV is zero or even negative.

• As the policy matures, the surrender charge gradually decreases, increasing the CSV and the net liquidity available to the policyholder.
• **Policy Loans** are not subject to surrender charges, making them a more accessible liquidity option early on.

Disclaimer: This content is for informational purposes only and is not financial or legal advice. Always review the policy illustration to see the surrender charge schedule before purchase.