Do I Get Money Back When I Cancel My Cash Value Plan?

The cash value in your policy will be available to you subject to the surrender penalties of the policy. These surrender charges are typically the most significant in the first three years, when the penalties represent 100% of any cash value in the plan. The penalties then tend to decrease each year you have had the plan and are typically gone after 10-15 years. When you attempt to cancel a cash value plan, most companies will try to imply that dropping the policy will have “serious” tax consequences. There is very rarely any tax due, however, and if there is, it is based on the amount you receive back that is in excess of the premium you paid. By multiplying up the number of years you paid the premium times the annual cost, you can quickly determine the extent of any taxes that may be due. The tax liability is only on the gain over the amount of premium paid, not the entire cash value amount. Even if taxes are due or surrender charges are applied, Dave advises cancelling these plans and moving on to more effective strategies. The key element to consider is making sure you have the correct amount of life insurance that your family needs. Remember never to cancel an existing plan until you have activated a new policy that meets your individual needs. Learn more about term vs. cash value.