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: Sun Jul 13, 2008 03:08 pm Post Subject: Surrendering Whole Life Policy?

Lots of topics to discuss here... The policy is an assett for you for sure. Ask the company about taking out some of the cash value (loan). you would still be able to keep the policy in force and if something does happen to you, your wife would recieve the benefit minus the loaned amount. Also, at this point, you are actually paying $115.00 per month for a $55,000 policy since you have the cash value built up. Some other things to consider here:
1: Is it the idea of losing a $115.00 bill that is appeealing to you?
2: Have you considered purchasing a single premium whole life policy with a portion of the cash value to cover expenses? ex: take $5,000 out of the policy to purchase a $10,000 policy with no further premiums due.
3: Holy cow, that's a pretty expensive health insurance premium, considered shopping that rate?
e-mail me if you have any questions, trahitt[at]yahoo.com

*email id deactivated for your safety-lakemen

Posted: Sun Jul 13, 2008 09:43 pm Post Subject: insurance

Please excuse my 'lack of knowledge' here, but......I din't know you can ACTUALLY surrender a Life Insurance policy. I'm just curious..for what reason would you want to do that? To get the money from it? To get a 'better' ( lack of a better word..) policy....one that may better suit your needs NOW?

Posted: Sun Jul 13, 2008 09:51 pm Post Subject:

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

NonsmokinJoe in my *SAFE opinion I would say...

Yes, no, maybe....just to be clear!

Life insurance is about financially protecting mama and the kids
should you suddenly be eaten alive, head first, by a Big Mac Truck;

and/or you simply don't wake up tomorrow morning.

The question to be answered is:
If you don't wake up tomorrow morning will mama and kids,... financially get along just fine,... without your income and the $75,000 from your policy?

If you were my client I'd recommend you apply for 20 year level term insurance. The premium for a male age 60, PREFERRED PLUS NON-TOBACCO, for $150,000 would be $117.73 per month if you qualify.

Once approved...I'd cash out the $20,000 and invest it in whatever is SAFE and sound for the protection of the cash asset or 1035 exchange for a better contract with a No Lapse Guarantee.

Now if you go bye-bye unexpectedly mama and the kids now have a minimum of $170,000 (life ins. + the cash) AND you are paying right at the same amount of money per month so your monthly budget is not affected.

To implement said plan, take a vacation to the Tampa Bay, Florida area and....

Posted: Fri Jul 18, 2008 04:26 pm Post Subject:

Before you surrender your life insurance policy in order for you to get the cash values, you should try to consider some things. As we all know, life insurance is for financial protection that when something will happen to you, your beneficiaries will still survive by using the money that is from the insurance proceeds. Now the question here is, Is life insurance still a necessity? Do you still need financial protection? If something would happen to you, would your family be financially stable? I think in that age of yours, I assume that your family can now survive with out your financial aid. If you don't see the need for life insurance in that age, you can surrender it and get the cash values. You can use it to additional funds for your retirement. That is one thing that you need to consider. The need for life insurance. We buy it because we know we need it. If the time comes that you don't need it, surrender it and enjoy the benefit that it will give you.

Posted: Thu Apr 30, 2009 01:06 pm Post Subject: insurance cash out

my dad has a poilcy thats worth 61,000 he pays 90a month he been paying for 25 years what do think the cash value would be and should he cash out because we need the money now

Posted: Thu Apr 30, 2009 08:48 pm Post Subject:

This is an old thread that got resurrected. What got missed in this thread is that the question is about surrendering a whole life policy, but the question asker has a universal life policy.

thands, you are asking an impossible question without knowing the cash value and other information. If the cash value is $60,000 and he's not about to die, it may make sense to cash it in. If the cash value is $1, it probably doesn't make sense to cash it in.

Posted: Sat May 02, 2009 02:12 am Post Subject:

Ask the company about taking out some of the cash value (loan). you would still be able to keep the policy in force and if something does happen to you, your wife would recieve the benefit minus the loaned amount.

"Something does happen to you" = You die.

I wish I had a dime for every case I've worked in which someone was enticed to take a loan out against a policy believing they could just take out a loan and the death benefit would be casually adjusted on the back end.

Let's not forget about the little things like premium payments and loan interest.

Posted: Sat May 02, 2009 05:45 am Post Subject:

I'm glad this was resurrected. Important points to consider. Good catch on the UL thing. I didn't catch the rising mortality rates in the OP post. That definitely points to Universal life.

Secondly, Investigator makes a good point. The interest on policy loans usually isn't that bad, it's the "forgetting about it" that's the issue. The interest will compound, and what was a $30k loan ends up being a whole lot more when the insured dies in 25 years. Oftentimes, they'll also take advantage of auto loan provisions to pay for the premium, and that just goes right on top of any existing loans.

If it sounds too good to be true, and you do it anyway, good luck. I will never say that policy loans are always a bad idea, but I will say that you better remember what you did to the death benefit in the end game. And remember (to quote):

"Something does happen to you" = You die.

InsTeacher 8)

Posted: Sat May 02, 2009 03:05 pm Post Subject:

Let's also keep in mind that there is much more risk with taking a loan from a UL policy than there is with a WL policy. Loans with UL policies greatly increase the risk of policy lapses. I'm not saying that a loan with WL doesn't come with risk, but the magnitude is much smaller.

Posted: Sat May 02, 2009 08:56 pm Post Subject:

Great follow-ups guys, thanks for the help.

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