What does the term "surrender charge" mean?

The term "surrender charge" refers specifically to a penalty imposed on policyholders who choose to withdraw or surrender their cash value from a life insurance policy before a predetermined period has elapsed. This charge is designed to offset the insurer's costs associated with underwriting the policy and the benefits they provide. Surrender charges are common in various types of cash value life insurance policies, such as variable life insurance, and typically decrease over time. This mechanism discourages policyholders from making early withdrawals, ensuring that the insurance policy remains profitable for the insurer while providing the policyholder with an initial savings period during which their investments can potentially grow without frequent interruptions.

In contrast, other options are related to different aspects of insurance policies or financial products but do not pertain to surrender charges. These aspects include fees for delayed payments, charges tied to policy renewals, or costs for changing investment options, each representing distinct situations that have no relation to the early withdrawal penalties that surrender charges represent.