Whole life insurance policies have a feature associated with them called an endowment. An endowment is an account that works along with the life insurance policy, where the cash in the policy earns interest. Rather than paying out the benefit of the policy when the policy holder dies, an endowment policy starts to pay out to the holder when the policy holder reaches a certain age or when the cash value is the same value as the death benefit. Surrendering an endowment life insurance policy has pros and cons associated with it.
The primary advantage of surrendering an endowment is that it provides immediate cash to the policy holder. If the policy holder is experiencing a financial hardship or has a need for the funds then is a benefit. It also provides the policy holder with an opportunity to withdraw the money from the life insurance policy and invest it an something that earns a higher interest rate or more of a return.
The disadvantage of surrendering an endowment is it means that upon the death of the policy holder, the heirs will not receive a death benefit payout from the policy. Surrendering the policy also removes the possibility of the policy holder accessing the cash when they need it for future expenses.
Another disadvantage is that the policy holder that surrenders the endowment may not be able to qualify for a new life insurance policy. For example, if the policy holder cashes out the policy at the age of 72, it may not be possible to establish a new policy, where certain health criteria must be met. Again, this means that heirs will not have access to any money when the policy holder passes away.
In addition to not having access to the money if the endowment is gone, an older policy holder also does not have time on their side. Even if they aren't too old qualify for a new life insurance policy or endowment, they may not have enough time to build up a big enough cash value to make the investment worth the effort and cost.
Another characteristic of this type of account has its advantages and disadvantages. The interest the account earns is based on how well the market is performing. When the market is returning low rates of interest, the endowment suffers. On the other hand, a thriving market benefits the endowment. In other words, there is a level of risk associated with purchasing and maintaining an endowment, as well as surrendering an endowment.