What is the effect of the surrender charge over time in a whole life policy?

In a whole life insurance policy, surrender charges are fees that the insurer imposes when the policyholder chooses to withdraw cash value or surrender the policy before a specified period. Over time, these surrender charges typically decrease. This reduction occurs because policies usually have a set surrender charge schedule that outlines how fees decline as the policy matures.

As the policyholder pays premiums and the policy ages, the insurer assumes less risk, and the account has had more time to accumulate cash value. Eventually, in many policies, these surrender charges may even be eliminated entirely after a certain point, making it more financially advantageous for the policyholder if they choose to access the cash value or surrender the policy later in its lifespan.

This gradual decrease reflects the company's commitment to rewarding long-term policyholders and encourages the retention of the policy for its intended duration.