Insurance Commission (IC) Variable Life Licensing Practice Exam

A surrender charge in Variable Life Insurance refers to a fee that is incurred when a policyholder decides to surrender, or cancel, their policy before a specified period has elapsed. This charge is designed to cover the insurance company's costs associated with issuing the policy and managing the investment component. It is often calculated as a percentage of the cash value of the policy and typically decreases over time, ultimately disappearing after a certain number of years.

This concept is important for policyholders to understand because surrendering a policy early can significantly reduce the money they receive compared to the cash value, and they may not receive a full return of the premiums paid. Knowing about surrender charges helps clients make informed decisions regarding their policy, especially if they are considering cashing out or changing their insurance needs.