Q&A Surrender of funeral expenses and benefits-in-kind insurance policies
Is the surrender of funeral expenses and benefits-in-kind insurance policies prohibited by law?
No, the surrender of funeral expenses and benefits-in-kind insurance policies is not prohibited by law. The right to surrender a policy is an aspect of insurance law and as such is regulated in Book 7 (Division 17) of the Dutch Civil Code. The provisions concerned are Articles 978 and 976. These articles provide that life insurance policies must stipulate that the policyholder is entitled to surrender the insurance (7:978(1), Civil Code), but that this obligation does not apply to policies that provide cover for funeral expenses and benefits in kind (7:976 Civil Code). Although this statutory obligation does not apply to funeral expenses and benefits-in-kind insurance policies, insurers that offer these policies are still free to include a provision allowing for surrender in their policy terms.
Besides the Civil Code, the Financial Supervision Act (Wet op het financieel toezicht / Wft) and the secondary legislation based on it implicitly provide that there can be a surrender value in the case of policies that provide cover for funeral expenses and benefits in kind. It can be inferred from this that insurers are not prohibited from paying out the surrender value on such policies on request, always assuming, of course, that the policy terms provide for this.
Article 116 of the Decree on Prudential Rules for Financial Undertakings (Bpr) refers to guaranteed surrender values in the case of life insurance policies. According to the definition in section 1:1 Wft, the term life insurance includes funeral expenses and benefits-in-kind insurance. Article 116 Bpr therefore also applies to funeral expenses and benefits-in-kind insurers. (Previously this provision was also contained in Article 1a of the Funeral Expenses and Benefits-in-Kind Insurers (Technical Provisions) Decree (Besluit technische voorzieningen natura-uitvaartverzekeringsbedrijf).
The statutory framework therefore enables funeral expenses and benefits-in-kind insurers to apply surrender values.
One aspect that should be not be overlooked in this connection is that the payment of the surrender value may be liable to income tax if income tax relief was claimed on the premiums (or single premium) paid in the past for these policies as extraordinary expenditure.