Two Ways to Exit a Policy

When a policyowner decides they no longer want or can no longer afford a life insurance policy, two of the most common options are:

• Cash surrender — Cancel the policy with the insurance company and receive the cash surrender value, if any.
• Life settlement — Sell the policy to a third-party buyer for a lump-sum payment.

Both result in the policyowner giving up the policy. The key difference is who receives it and how much the policyowner gets paid.

What Is Cash Surrender Value?

Cash surrender value is the amount the insurance company will pay if the policyowner cancels the policy before death. It is determined by the terms of the policy and the insurance carrier.

For term life insurance, there is typically no cash surrender value at all. For permanent policies (whole life, universal life), the cash surrender value may be a portion of the accumulated cash value, minus any surrender charges or outstanding loans.

In many cases, the cash surrender value is a small fraction of the policy's death benefit.

What Does a Life Settlement Offer?

A life settlement is a market transaction. Instead of accepting the insurance company's surrender value, the policyowner sells the policy to an institutional buyer who values it based on its market potential.

The buyer's offer reflects the policy's death benefit, the insured's life expectancy, ongoing premium obligations, and market demand. Because the buyer is paying for the future death benefit, the offer is typically higher than the cash surrender value.

According to FINRA, life settlement payments are "generally more than the policy's cash surrender value and less than the net death benefit."

What the Industry Data Shows

The Life Insurance Settlement Association (LISA) publishes annual market data from its member companies. LISA's 2025 annual report, released in May 2026, reported the following:

• LISA members paid $626.6 million to consumers for policies they no longer needed in 2025.
• Consumers who sold through a life settlement received nearly nine times their cash surrender value on average — approximately 900% more than they would have received by surrendering.
• The average cash surrender value offered by insurers in 2025 was $24,360, while the average life settlement payout was $212,066.
• Over five years (2021–2025), LISA members paid consumers $3.6 billion for approximately 15,000 policies.

These figures are industry averages based on LISA member data. They do not represent what any individual policy will receive. Every policy is different, and actual offers vary widely based on policy specifics and market conditions.

When Might Each Option Make Sense?

Neither option is inherently better — the right choice depends on the specific policy and the policyowner's situation.

Cash surrender may be worth considering when:

• The policy has meaningful cash value and the owner wants a simple, fast exit.
• The policy does not meet life settlement criteria (for example, the insured is younger or the policy is too small).
• The owner prefers to deal directly with the insurance company.

Life settlement may be worth exploring when:

• The policyowner is a senior (typically 65+) with a policy of $100,000 or more.
• The cash surrender value is low or zero (common with term and older universal life policies).
• The owner wants to understand the full range of options before making a decision.

The Key Takeaway

The most important thing a policyowner can do is understand all available options before acting. Lapsing a policy or accepting the cash surrender value without exploring whether a life settlement is available may mean leaving value on the table.

As LISA Chair Rob Haynie noted: "For many policyholders, understanding that a secondary market exists for life insurance policies can open the door to options they may not have realized were available."

That understanding starts with education — and with comparing the actual numbers for a specific policy.

What to Expect During the Process

Understanding what happens during each option can help policyowners choose with confidence.

The Cash Surrender Process

Surrendering a policy is straightforward. The policyowner contacts the insurance company, requests a surrender, and the company pays the cash surrender value (minus any outstanding loans or surrender charges). The process typically takes days, not weeks. Once complete, the policy is cancelled and the death benefit is gone.

The Life Settlement Process

A life settlement involves more steps but may produce a significantly different result:

• Information gathering — Basic policy details are collected: policy type, death benefit, premium amount, insured's age and health profile.
• Market evaluation — A licensed provider or broker evaluates the policy's market value based on the collected information and medical records (with the insured's consent).
• Offer — If the policy qualifies, the provider makes an offer. This offer is typically presented as a lump sum.
• Comparison — The policyowner compares the offer against the cash surrender value and other options.
• Closing — If the offer is accepted, paperwork is signed, ownership transfers, and the seller receives payment. Many states provide a rescission period during which the seller can reverse the decision.

The settlement process typically takes 4–8 weeks from start to finish, depending on how quickly medical records and policy documents are obtained.

A Practical Comparison

| Factor | Cash Surrender | Life Settlement |

|--------|---------------|-----------------|

| Who receives the policy | Insurance company | Third-party buyer |

| Typical payout | Cash surrender value (may be $0 for term) | Typically higher than surrender value |

| Time to complete | Days | 4–8 weeks |

| Tax implications | Gain above basis may be ordinary income | May involve both ordinary income and capital gains tiers |

| Complexity | Simple | More involved, requires documentation |

| Regulation | Handled by the insurance carrier | Regulated by state insurance departments |

Neither option is better in every situation. The right choice depends on the specific policy, the policyowner's circumstances, and the offers available in the current market. The key is to explore both before deciding.