What does it mean to "surrender" a life insurance policy?

Surrendering a life insurance policy refers to the process where the policyholder cancels their policy and receives the cash value accumulated over time, if applicable. This typically occurs in permanent life insurance policies, which build cash value as premium payments are made. Once the policy is surrendered, the coverage ends, and the policyholder receives a lump sum of money, which can be used at their discretion.

This procedure is particularly relevant for policyholders who no longer need the insurance or wish to access the cash value for other financial needs. It's important to note that surrendering a policy may result in the loss of death benefits, and if the cash value is less than the total premiums paid, there may be tax implications on the difference.

The other options do not accurately describe the process of surrendering a life insurance policy. Upgrading a policy involves modifications to enhance benefits rather than canceling it, transferring ownership relates to changes in who controls the policy rather than ending it for cash, and renewing a policy pertains to extending coverage, typically at a higher premium, rather than surrender.