What is a surrender charge in a VUL policy?

A surrender charge in a Variable Universal Life (VUL) policy is a cost incurred when the policyholder withdraws funds or surrenders the policy before a specified period. This charge is designed to protect the insurer from losses associated with early withdrawals or policy surrenders, as the company often incurs expenses related to issuing the policy and managing the underlying investments.

These charges typically decrease over time, reflecting the insurer's reduced risk as the policy matures. For policyholders, it's essential to understand that surrender charges can affect the overall cash value available to them if they decide to access their funds early or terminate the policy. Being aware of these charges allows policyholders to make informed decisions about their VUL policies and manage their financial planning accordingly.