Most single premium policies charge a “back-end” fee if the owner surrenders the policy within the first five to ten years. The charge usually starts at 7 to 10 percent of the initial premium and declines each year the policy is in force. For example, for a $10,000 single premium policy, the surrender charge might be $700 the first year, $600 the second year, $500 the third year, and so on until the eighth and later years when the insurer charges no surrender fees.
Other policies charge a declining percentage of the cash value. For instance, the charge may be 7 percent of the first year’s cash value the first year, 6 percent of the second year’s cash value the second year, and so on. Because cash values grow each year, surrender charges will generally be higher on those policies that charge a declining percentage of the cash value than on those that charge a declining dollar fee each year or a declining percentage of the premium.
Reproduced with permission. Copyright The National Underwriter Co. Division of ALM