What happens to the death benefit if the policyholder surrenders their policy?

When a policyholder surrenders their life insurance policy, it generally leads to the forfeiture of the death benefit associated with that policy. Instead, the policyholder receives the cash value that has accumulated in the policy up to the point of surrender. This is particularly common in whole life insurance and other types of permanent insurance, where there is a cash value component.

Upon surrendering the policy, the insurance company pays out the cash value to the policyholder, but the actual death benefit, which is intended to provide financial protection to beneficiaries upon the policyholder's death, is essentially rendered void. The policy no longer exists, and therefore, no death benefit will be paid out in the event of the policyholder's death after surrendering the policy.

Understanding this provision is crucial for those considering to surrender their policy, as it represents a significant financial decision that impacts the coverage intended for their beneficiaries.