What if you want to surrender your life insurance policy?

by NonsmokinJoe » Fri Jul 11, 2008 09:13 pm

You may have your own reasons for surrendering your life insurance policy. The reasons must be significant enough, since surrendering a policy would mean that you lose all the benefits that had prompted you to go for it in the first place.

How much will you get back if you surrender the policy?

You'd receive the accumulated cash value if you surrender your policy before the maturity date. The cash value is the total sum of money that you have paid as premiums for the policy along with the interests earned on them.

What happens after you surrender your policy?

You'll be entitled to receive the accumulated cash value after you surrender your life insurance policy. However, surrendering the policy before the maturity date will impact the way you'll receive it. The consequences of your life insurance policy surrender are enumerated below:
  1. You'll have to pay surrender fees - You'll be charged a fee for surrendering your life insurance policy before the date of maturity. The earlier you surrender the policy, the higher will be the surrender charge that you'll have to pay.
  2. Cash value gets reduced if you'd taken out a loan - The cash value will be less if you had taken out a loan against the policy, since the loan amount and the accrued interest will be deducted accordingly.
  3. Taxes will be imposed - Since you're surrendering your policy earlier than the date of maturity, the cash value might be considered as taxable income. If you have any outstanding loan balance on the policy, taxes will be levied on that as well.
  4. You'll have to renounce the death benefits - The cash value you get from the policy, after you surrender it, will include the accumulated dividends and unearned premiums. You give up both the death benefit and life insurance coverage that you had with the existing policy, and won't need to pay premiums on it anymore.
The remaining cash value is directly paid to the policyholder - either in cash, or in check.

What if you want to retain the death benefits?

It is obvious that no one buys life insurance policy, with the intention to surrender it mid-way. Therefore, it will be wise to consider other options rather than going for a life insurance policy surrender. To retain the death benefits, one may:
  1. Opt for a partial surrender - Transform the existing life insurance policy into a reduced paid-up insurance. Surrendering the policy as a whole gets rid of any coverage that you had with it. With a partial surrender, a portion of the life insurance policy is retained. However, the death benefits and cash value gets reduced.
  2. Borrow against the cash value - If you have immediate cash requirements, you can even take out loans against the cash value, without giving up the death benefits. You may repay the loan with time, but don't need to worry even if you're unable to pay it back. The loan amount will simply be deducted when the insurer gives out the death benefits to the beneficiary.
  3. Purchase a new policy - Use the cash, after surrendering his life insurance policy, to purchase a new term life insurance policy for an extended time period.

How to surrender your life insurance policy

If you've made up your mind that you'll surrender the life insurance policy, you can do the following:
  • Call up the insurance company and know how to surrender your policy.
  • Ask for a Service Request Form.
  • Fill in the necessary details about your policy in the form. Tick the option where you want to surrender the policy.
  • Fill in your preference, i.e. the way you want to receive the available cash value from the policy.
Your insurer might ask you to submit a letter for surrender of insurance policy, Check out the sample insurance surrender letter, which you can forward to your insurer for the purpose.

Related Readings

I have an insurance question:

I am married, age 60, with a $75,000 whole life policy on myself. Premium is $115 a month, and Cash Surrender Value is approximately $20,000. I recall the policy projections showed the cash surrender value would start to erode in my 60's, as mortality probability increases. I also just read that this is common, and to consider surrendering the policy, but no time frame was suggested.

We don't need the life insurance coverage for estate taxes, and my wife's income (she's a realtor) has plummeted dramatically. She's tired of that business, so who knows what the future holds regarding future earning potential (she's late 50-something). Health insurance coverage is a big issue ($780/month just for her - I have single coverage from my employer).

Based on the facts presented, should we consider cashing in my whole life policy?

Total Comments: 115

Posted: Thu Jul 30, 2009 03:17 am Post Subject: question

Hi and thank you for your time, I have whole life 150,00 policy paying 175.00 monthly i'm 47 years old, cash value 26,000 and thinking of surrending it, taking cash value out, buying level term policy for 150,000 30 years , paying 84.00 monthly would that be smart or what do recomend?
thank you

Posted: Thu Jul 30, 2009 06:01 am Post Subject:

Hello Sara, let's take a closer look at your question.
Because there are usually boatloads of "term-ites" watching these posts, I'll try and keep this as simple as possible.

Let's assume you purchased your whole life policy yesterday from a reputable company. You will pay $175 each month for approximately 25 years. Provided you have made these payments in a timely manner and haven't removed any of the equity from your policy, the plan will [probably] become self-sufficient.

This means that at your age 72, you will have spent $52,500 for a $150,000 life insurance policy that will continue to provide coverage until your heart stops beating - whenever that might be.

If you elect to purchase a $150,000 30-year term plan for $84 per month, at the end of the term you will have spent $30,240. A premium difference of $22,260. Sounds kind of simple, doesn't it?

Just remember, in order for this policy to benefit anyone other than the insurance agent and his/her company, you must die before your age 77. Actually, it doesn't get much simpler than that.

Provided you are in good health, the Commissioner's Ordinary Standard Table of Life Expectancies, predicts you will live to be around 87 or 88 years old. The chances of you purchasing another life insurance policy at your age 77 are not very good at all.

In short, if $150,000 is meant to benefit a husband, children, grandchildren or other loved ones, make sure they know (and understand) you need to die before your age 77 so that you can leave them a little something to remember you by.

By the way, if you have been encouraged by Primerica agent to cancel your whole life policy, for one of their term plans, one of the best known life insurance fraud investigators in the United States suggests that you "just say no".

Posted: Thu Jul 30, 2009 06:38 am Post Subject:

Hi Sara..

Obviously it's popular since it reduces the premium rate, but there are certain things that you need to consider-

* Many of the riders that you may enjoy with a WL policy may not be there for a term life policy. Also, the riders that you'd have with term life policies may expire with the term of the policy.

* You won't be able to get loans against term life policies
* No cash value would be generated

* If you'd need to renew this policy at the end of the term the premium may not remain the same and might well be beyond your reach.

So, now it's time for you to think! Roddick

Posted: Thu Jul 30, 2009 08:59 am Post Subject:

Hello Sara, you have received some great suggestions from the posters above. I'd request you to pay hid to what InsInvestigator has suggested.

The problem with term life policy is it doesn’t accumulate any cash value. Also, no benefits would be paid if the insured doesn’t die within the term period.

Term plan can be your choice if your only concern is to pay-off your debts after your death but whole life plan would help you in accumulating asset to pass on to your loved ones.

~ Jeremy

Posted: Thu Jul 30, 2009 12:06 pm Post Subject:

Hi and thank you for your time, I have whole life 150,00 policy paying 175.00 monthly i'm 47 years old, cash value 26,000 and thinking of surrending it, taking cash value out, buying level term policy for 150,000 30 years , paying 84.00 monthly would that be smart or what do recomend?

A few things to note:

1. Keep in mind that if you surrender your policy, you may also incur a taxable event if the cash value paid out is greater than your cost basis (i.e. premiums paid into the policy).

2. $84/month seems awfully high for $150k of 30-year term for a 47 year old female. Even at standard rates, I come up with $50/month for a couple of companies. A $150k policy guaranteed forever (no-lapse UL) at standard rates would be approximately $110/month. If you are in good health with normal height/weight profile, normal family medical history, those premiums could drop to ~$90/month guaranteed forever or $29/month for 30-year term.

3. If you did not want to pay any more premiums, you could exchange the cash value for a paid-up policy that is guaranteed to never lapse with a different company. If in perfect health, you could get a $250,000 death benefit with a lump sum transfer of approx. $25.5k. If in standard health, you could get approximately $210k death benefit with a lump sum transfer of $26k.

If you want to explore these options, feel free to send me an e-mail at dgold@goldfinancialgrp.com. I'm an independent agent and would be happy to put you on the right track. Sounds like your current agent is trying to sell you an overpriced policy unless you have some major medical conditions.

Posted: Sun Jun 27, 2010 08:41 am Post Subject: mortgage and life insurance

my mortgage and life insurance is with the same company. will they accept my life insurance before i die as a trade to pay off my mortgage and then no life insurance payment is made when i die

Posted: Sun Jun 27, 2010 03:22 pm Post Subject:

I guess the key phrase here is "before I die."
Allianz used to sell a product called an Equity Index LifeFund III that, in my opinion, was one of the best policies I've ever seen.

Built into the policy was something called a Preferred Settlement Value (which was really nothing more than a type of modified accumulation account) that could be used at retirement - or some point in the future - as a source of income. However, when the PSV was utilized, the policy was terminated.

Now, back to your question; I've never seen a case where a mortgage/insurance company traded the settlement value of a life policy in that way. I'm not saying it absolutely couldn't happen - especially if you were terminally ill and the company could benefit from the transaction (the most important provision). I just seriously doubt they would do it.

Posted: Wed Jan 25, 2012 03:55 pm Post Subject:

This is not a relationship advice column. Moderators, please delete the spam posts and block the spammers please.

Posted: Mon May 21, 2012 06:39 pm Post Subject: whole life insurance

a family member is leaving me 4500 dollars in a whole life insurance policy when they die? Can I cash this out now, if they agree and how much would I receive? Money has been sitting there since 1995.

Posted: Tue May 22, 2012 02:57 am Post Subject:

Can I cash this out now, if they agree and how much would I receive? Money has been sitting there since 1995

This is an odd request. Why would "they" agree to cash out the policy now and give you the money instead of keeping it for themself?

A $4500 policy "sitting there since 1995" would not be worth $4500.

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