How to Surrender an Ameritas Universal Life Insurance Policy for Cash

To surrender an Ameritas universal life insurance policy, you must submit a signed surrender request form directly to Ameritas Life Insurance Corp., choose your tax withholding options, and return your original policy document or a lost policy statement. Ameritas will calculate your net cash surrender value by deducting any active surrender charges, unpaid policy loans, and accrued loan interest from your total accumulated cash value.

Disclaimer: This guide is provided for educational and informational purposes only and does not constitute formal legal, tax, or financial advice. Life insurance tax treatment depends on individual circumstances and federal/state statutory provisions. Always consult a licensed financial advisor, Certified Public Accountant (CPA), or tax professional before terminating a life insurance policy.

Understanding Ameritas Universal Life Policy Surrender

Surrendering a universal life (UL) policy permanently terminates your insurance coverage. When you cash out an Ameritas universal life insurance contract, you relinquish the death benefit in exchange for the policy's net cash surrender value.

Universal life insurance policies—including traditional universal life, indexed universal life (IUL), and variable universal life (VUL)—consist of two primary components: a death benefit component and an unbundled cash value accumulation account. Premium payments fund the cash value account after deducting administrative fees, cost of insurance (COI) charges, and rider expenses. Over time, interest earnings or index-linked returns accumulate within this account on a tax-deferred basis under Internal Revenue Code (IRC) Section 7702.

However, the balance listed as your total cash value on an annual policy statement is rarely the exact check amount you receive upon cancellation. Ameritas distinguishes between two distinct financial figures:

• Accumulated Cash Value (Account Value): The total gross value of funds credited to your contract through premiums and investment performance, prior to applying contractual penalties or loan deductions.
• Net Cash Surrender Value: The actual cash payout available to the policyowner after deducting contractual surrender charges, outstanding policy loan balances, and accrued policy loan interest.

Net Cash Surrender Value = Gross Cash Value - Contractual Surrender Charges - Outstanding Loan Balances - Accrued Loan Interest

Before initiating a surrender, policyowners must evaluate where their policy sits within its life cycle. Canceling a policy early in its term can result in significant financial loss due to early surrender penalties.

Surrender Charge Schedules and Loan Balances

When you purchase an Ameritas universal life insurance policy, the insurer incurs upfront underwriting, sales commission, and administrative issuing costs. To recoup these expenses if a policy is terminated prematurely, life insurance contracts include a surrender charge period.

How Ameritas Surrender Charge Schedules Work

Surrender charges are contractually defined fees that reduce your cash value if you surrender the policy during its initial years. For most universal life policies, surrender charges apply for the first 10 to 15 years of the contract, depending on the specific product version and issue age of the insured.

• Early Policy Years (Years 1–5): Surrender fees are highest during this period and can equal a substantial percentage of the cash value or a fixed dollar amount per thousand dollars of policy face value. In some early years, the surrender charge may completely offset accumulated cash value, yielding a net payout of $0.
• Intermediate Policy Years (Years 6–10/15): The surrender charge schedule gradually declines (amortizes) according to a pre-determined table found in your original contract schedule.
• Post-Surrender Charge Window: Once the surrender charge period expires, the surrender fee drops to $0. At this stage, your gross cash value equals your gross surrender value (less any loan deductions).

The Impact of Outstanding Policy Loans

If you borrowed money against your Ameritas policy prior to requesting a surrender, those funds reduce your payout dollar-for-dollar.

When you take a policy loan from a universal life policy, Ameritas uses your accumulated cash value as collateral. The principal loan amount remains unpaid until you actively repay it or surrender the contract. Upon surrender, Ameritas automatically subtracts the full outstanding loan principal along with all unpaid, accrued loan interest from your accumulated cash value.

If your policy loan balance exceeds your accumulated cash value, the policy can lapse, which carries severe tax consequences without yielding any cash payout.

Calculating Your Net Cash Payout and Tax Basis

Calculating your net surrender check requires evaluating both contract deductions and your policy's tax basis. Under U.S. federal tax code (IRC Section 72), life insurance cash value distributions receive specific tax treatment depending on whether the policy is classified as a standard life insurance policy or a Modified Endowment Contract (MEC).

Determining Cost Basis (FIFO Accounting)

For non-MEC policies, life insurance withdrawals and surrenders operate under a First-In, First-Out (FIFO) accounting rule. Your cost basis generally consists of:

$$\text{Cost Basis} = \text{Total Premiums Paid} - \text{Prior Non-Taxable Withdrawals/Dividends Received}$$

When you surrender a standard non-MEC policy:

1. Return of Premium: Surrender proceeds up to your cumulative cost basis are treated as a tax-free recovery of capital.
2. Taxable Gain: Any net surrender proceeds exceeding your cost basis are taxed as ordinary income (not capital gains) in the tax year the surrender occurs.

Surrender Calculation Matrix

The following table provides a breakdown of how gross cash value translates to net proceeds and taxable gain across different policy scenarios.

Note: Out-of-pocket policy losses resulting from early surrender charges are considered personal expenses by the IRS and cannot be claimed as tax-deductible capital losses.

Step-by-Step Guide: How to Surrender Your Ameritas Policy

To cash out your Ameritas universal life policy efficiently and avoid processing delays, follow this step-by-step procedure.

1. Request In-Force Illustration
2. Download Ameritas Surrender Form
3. Complete Tax Withholding (W-9)
4. Notarize & Submit
5. Receive Payout

Step 1: Request an In-Force Illustration and Surrender Quote

Before submitting termination paperwork, contact Ameritas Client Services or log into the Ameritas customer online portal.

• Request an In-Force Policy Illustration and an official Surrender Value Quote.
• Verify the exact current surrender charge, outstanding loan amounts, current gross cash value, and calculated cost basis.

Step 2: Download the Official Ameritas Surrender Request Form

Ameritas requires written authorization using their standardized administrative forms. You can access these documents by accessing your online client account or contacting customer support.

• Ensure you obtain the Full Surrender / Policy Cancellation Form (often titled Policy Change Request or Life Insurance Surrender Request).
• If your policy was issued under a specific sub-brand or corporate entity (e.g., Ameritas Life Insurance Corp., Ameritas Variable Life Account, or legacy Acacia Life / Union Central Life contracts), verify that the paperwork matches the underwriting entity on your original policy schedule.

Step 3: Complete Policy and Owner Identification Details

Fill out the identifying information completely:

• Policy Number(s)
• Full Legal Name of the Policy Owner (Individual, Joint, Trust, or Corporate entity)
• Social Security Number (SSN) or Taxpayer Identification Number (TIN)
• Date of Birth
• Current Physical Address and Contact Phone Number

Step 4: Make Tax Withholding Elections

Ameritas is required by federal law to provide tax withholding options on taxable surrender gains.

• Federal Withholding: You must elect whether to have federal income tax (typically 10% default) withheld from the taxable portion of your surrender proceeds.
• State Withholding: Mandatory or elective state income tax withholding applies depending on your state of legal residence.
• If you elect not to have taxes withheld, you remain responsible for paying all applicable federal and state income taxes when filing your annual return.

Step 5: Address Original Policy Contract Requirements

Ameritas policy contracts stipulate that the physical policy document must be surrendered.

• If you have the original paper policy contract, submit it alongside your surrender form.
• If the original policy document is lost, damaged, or destroyed, check the Lost Policy Statement/Affidavit box located on the Ameritas surrender form, certifying that the contract is no longer in your possession.

Step 6: Obtain Necessary Signatures and Notarization

All legal owners and required third parties must sign and date the document.

• Joint Ownership: Both owners must sign.
• Irrevocable Beneficiary: If your policy names an irrevocable beneficiary, that individual must sign the surrender request consenting to policy termination.
• Collateral Assignments: If the policy was assigned to a bank or lender as collateral for a loan, the assignee must execute a formal release of assignment prior to surrender.
• Notarization Requirements: Ameritas generally requires a Notary Public seal or a Medallion Signature Guarantee if the surrender value exceeds specific threshold limits (commonly $25,000 or $50,000) or if payout funds are directed to a third party or recently updated address.

Step 7: Submit the Documentation to Ameritas

Send the completed, signed, and notarized forms to Ameritas using one of their approved delivery channels:

• Mail (Standard): Ameritas Life Insurance Corp. P.O. Box 81889 Lincoln, NE 68501
• Overnight/Express Mail: Ameritas Life Insurance Corp. 5900 O Street Lincoln, NE 68510
• Customer Support Phone: 1-800-745-1110
• Secure Client Portal: Upload scanned PDFs directly through the document submission tool inside your secure account dashboard.

Upon receipt of complete paperwork, Ameritas typically processes surrender payouts via direct deposit (ACH) or physical paper check within 5 to 10 business days. Statutory regulations allow insurers up to 6 months to process surrender payouts under rare emergency circumstances, though standard processing is completed within two weeks.

Tax Consequences of Surrendering Universal Life Insurance

Surrendering a policy can trigger unexpected tax bills if not planned carefully. Understanding IRS regulations governing life insurance cash distributions prevents costly surprises at tax time.

Tax Treatment of Non-MEC Policies (Ordinary Income vs. Basis)

If your policy is a standard life insurance contract, earnings are taxed only when total distributions exceed total premiums paid.

For example, if you paid $45,000 in cumulative premiums over 15 years and surrender the policy for a net cash payout of $60,000, you have a $15,000 taxable gain. This $15,000 is reported to the IRS and taxed as ordinary income based on your federal marginal tax bracket (e.g., 22%, 24%, or 32%), plus applicable state income taxes. It does not qualify for long-term capital gains tax treatment.

Modified Endowment Contracts (MEC Rules and 10% Penalty)

If your policy failed the IRS 7-Pay Test under IRC Section 7702A at any point during its life, it is classified as a Modified Endowment Contract (MEC). Policies become MECs when funded too quickly with excess cash during the initial seven years or following a material policy change.

Surrendering a MEC changes the tax order completely:

1. LIFO Accounting (Last-In, First-Out): All earnings accrued inside the contract are distributed first before any tax-free cost basis is returned.
2. 10% Early Withdrawal Penalty: Under IRC Section 72(v), if you surrender a MEC before reaching age 59½, any taxable portion of the payout is subject to an additional 10% IRS tax penalty, unless an exception (such as total disability) applies.

IRS Reporting via Form 1099-R

In January of the calendar year following your policy surrender, Ameritas will issue IRS Form 1099-R (Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.) to both you and the IRS.

• Box 1 (Gross Distribution): Displays the total gross payout before tax withholding.
• Box 2a (Taxable Amount): Displays the calculated taxable gain.
• Box 7 (Distribution Code): Indicates the nature of the surrender (e.g., Code 7 for normal distribution, Code 1 for early distribution under 59½ if a MEC).

Strategic Alternatives to Full Policy Surrender

Surrendering your policy completely terminates your insurance protection and can trigger unnecessary taxes or surrender fees. Depending on your financial goals, several alternatives may allow you to access liquidity or reduce expenses while preserving value.

• Financial Need: Access Liquidity or End Ameritas Policy Premium Costs
  • Need Tax-Free Cash
    • Policy Loan (No Taxes)
    • Partial Surrender (Up to Basis)
  • Need Continuous Coverage
    • Reduce Death Benefit / RPU
    • Cash Value Offset Premiums
  • No Longer Need Policy
    • 1035 Exchange (Roll to Annuity)
    • Life Settlement (Sell Policy)

1. Partial Surrender (Withdrawal)

Instead of canceling the contract entirely, Ameritas universal life contracts permit partial surrenders.

• How it works: You withdraw a portion of your accumulated cash value while keeping the contract active.
• Tax Advantage: For non-MEC policies, partial withdrawals are tax-free up to your cumulative cost basis.
• Impact: A partial surrender permanently reduces your policy’s death benefit dollar-for-dollar (or based on the option specified in your contract) and may incur a small administrative processing fee (typically $25).

2. Policy Loan

Taking a policy loan allows you to access cash without surrendering the contract or triggering a taxable event.

• How it works: You borrow against your cash value balance. Ameritas charges policy loan interest, but the underlying cash value continues to earn interest or investment returns.
• Tax Advantage: Policy loans are non-taxable distributions under IRC Section 72, regardless of whether the loan amount exceeds cost basis (provided the policy remains active).
• Risk: Unpaid loan interest accrues annually. If total outstanding debt exceeds the accumulated cash value, the policy will lapse, immediately triggering income taxes on all gain above your cost basis.

3. Tax-Free 1035 Exchange

If you no longer need life insurance protection but want to avoid paying ordinary income tax on accumulated policy gains, consider a 1035 Exchange under IRC Section 1035.

• How it works: You transfer the full net cash surrender value directly from your Ameritas policy into a new non-qualified fixed annuity, fixed-indexed annuity, variable annuity, or tax-qualified long-term care (LTC) insurance policy.
• Tax Advantage: The tax liability on your accrued gain is deferred entirely, transferring smoothly into the new contract without triggering immediate tax. Funds must transfer directly between insurance carriers (trustee-to-trustee transfer); taking personal custody of the funds invalidates 1035 tax treatment.

4. Life Settlement (Selling Your Policy)

If the insured is age 65 or older, or has experienced a significant change in health condition, selling the policy on the secondary market through a Life Settlement may yield significantly more cash than surrendering it to Ameritas.

• How it works: An institutional investor purchases the policy, assumes responsibility for paying all future premiums, and collects the death benefit when the insured passes away.
• Financial Payout: Life settlements typically pay a lump sum that is higher than the net cash surrender value, though lower than the total death benefit.

5. Reduced Paid-Up (RPU) or Cash Value Premium Offset

If your primary goal is to stop paying out-of-pocket premiums rather than receiving cash, you do not need to surrender the policy:

• Premium Offset: Instruct Ameritas to deduct monthly cost of insurance (COI) charges directly from your accumulated cash value account until the cash balance is depleted.
• Reduce Face Amount: Lower your policy’s death benefit to the minimum allowable threshold. Lowering the face amount reduces monthly COI charges, allowing your existing cash value to maintain the coverage longer without requiring additional premium payments.

Common Mistakes to Avoid When Cashing Out

Failing to analyze the operational details of an Ameritas surrender can lead to preventable financial loss. Avoid these common pitfalls:

1. Surrendering During a Peak Surrender Fee Window

Surrendering a policy in year 4 or 5 of a 10-year schedule can cost thousands in surrender charges. Request a surrender charge schedule from Ameritas to see how quickly the fee drops. Waiting a few months or a year can significantly increase your net check amount.

2. Ignoring Outstanding Policy Loans Before Surrendering

If you surrender a policy with an active loan, Ameritas treats the loan pay-off as a cash distribution. If your total cash value is $50,000, your loan balance is $30,000, and your cost basis is $15,000, surrendering yields a net check of $20,000, but creates a $35,000 taxable gain ($50,000 gross value minus $15,000 basis). The IRS taxes the full gain even though you received only $20,000 in net cash.

3. Taking Direct Receipt of Funds Intended for a 1035 Exchange

If you want to transfer your policy value to an annuity or long-term care policy, do not request a direct cash surrender check. If Ameritas issues a check in your name, the transaction is classified as a taxable surrender. A 1035 exchange must be initiated by the receiving insurance company via direct institutional transfer paperwork.

4. Overlooking Irrevocable Beneficiaries or Assignments

Submitting a surrender form without the signature of an irrevocable beneficiary or legal collateral assignee will result in immediate rejection by Ameritas administrative processing teams, delaying access to your funds.

Frequently Asked Questions

How long does Ameritas take to process a policy surrender check?

Once Ameritas receives fully executed surrender forms, tax withholding declarations, and necessary notarizations, processing generally takes between 5 to 10 business days. If funds are transferred electronically via ACH direct deposit, funds typically clear within 2 to 3 days after processing.

Are life insurance policy surrenders taxable?

Policy surrenders are taxable only on gains above your cost basis (total premiums paid minus prior tax-free distributions). The portion of the payout equal to your cost basis is a tax-free return of capital. If total net surrender value is less than total premiums paid, no income tax is owed, but the loss cannot be deducted on your tax return.

Can I surrender my Ameritas policy online?

You can download surrender forms and initiate requests through the Ameritas online client portal. However, due to legal and verification requirements, Ameritas frequently requires signed forms uploaded as secure PDFs, or mailed physical forms containing notarized signatures if payout thresholds exceed policy minimums.

What happens if I surrender a policy with an outstanding loan?

When you surrender a policy with an outstanding loan, Ameritas applies your gross cash value to pay off the loan principal and interest balance first. The remaining amount is paid to you. The IRS treats the loan pay-off as part of your gross distribution, which can create a taxable gain even if your net cash payout is small.

How do I contact Ameritas customer service for surrender value requests?

You can contact Ameritas Life Insurance Corp. Client Services directly by phone at 1-800-745-1110 (Monday through Friday, standard business hours Central Time). You can also manage your account, request illustrations, or submit surrender forms electronically through the official Ameritas Client Portal.

Strategic Next Steps

If you are considering surrendering your Ameritas universal life insurance policy, execute the following strategy to optimize your financial outcome:

1. Request an Official Policy Illustration: Contact Ameritas at 1-800-745-1110 to obtain a written statement detailing your exact gross cash value, current surrender charge, outstanding loan balance, and cumulative tax basis.
2. Evaluate Tax Liabilities: Calculate your projected taxable gain (Gross Cash Value minus Cost Basis) and discuss the marginal income tax impact with your CPA or tax professional.
3. Compare Alternatives: Review whether a partial withdrawal, policy loan, 1035 exchange into an annuity, or reduced paid-up option better accomplishes your cash flow and risk-management goals.
4. Execute Paperwork Accurately: Complete the Ameritas surrender request form, select your tax withholding options, obtain notarization if required, and submit the documentation through the secure client portal or trackable overnight mail.