A paid-up whole life insurance policy can be surrendered by terminating the policy upon which the policyholder receives the cash surrender value, according to Investopedia. The cash surrender value is the amount of money the insurance company pays to the policyholder when the policy is terminated before its maturity.
The insurance company will also pay the cash surrender value if the policy is voluntarily terminated before the insured event occurs, according to Investopedia. Essentially, this cash surrender value is the savings portion of a whole life insurance policy. During the early years of a policy, it does not carry very much return when compared to the premiums paid.
An individual may have taxable income if he surrenders a whole life insurance policy, according to Bankrate. If the cash surrender value is higher than the premiums paid during the life of the policy, the excess is considered income and is shown on the 1099-R received from the company.
Other non-forfeiture options for a whole life insurance policy besides surrendering it if the premiums are not paid during the grace period include taking reduced coverage for the remainder of the policy with no future premiums, using the accumulated cash value to pay for future premiums or buying an extended term insurance with the remaining cash surrender value, according to Investopedia.