When you don’t want your life insurance policy anymore, you have the option to either surrender it or sell it. While they both involve getting rid of an unwanted or ineffective policy, the benefits differ.
The surrender value is a lot lower than what you will make if you sell out your insurance policy. However, many people still opt for surrendering the policy because they are not aware of the advantages of selling a life insurance policy over surrendering it.
Let’s get to know these options in detail:
Cash Surrender: When you opt to surrender your policy, you accept the cash surrender value assigned to your policy by the provider.
Universal and whole policies accrue a good value. Hence, a surrender can be a good option in such a case. The amount usually depends on the terms of the policy, in addition to the age of the policy.
A policy might have accrued a nice amount of value or very little value. When you surrender a policy, you get rid of the burden of having to pay monthly premiums and may be able to get a good amount in return.
However, such ease is not available in case of a term policy. When you surrender such a policy, you only get rid of premium payments but don’t get any amount in return as such a policy does not accrue any value over time.
There are a few things you must remember when surrendering your policy. The most important factor is the age of the policy. If your policy is new, you may have to pay a hefty surrender fee. This will impact the amount of cash that you’ll receive.
Secondly, you have to take care of cash implications as well. The gain is considered as an income and hence is taxable. You should consult a tax professional to know the real implication of surrendering a life insurance policy.
Selling Insurance: Also known as a life settlement, it involves selling your insurance policy to an investor. You basically transfer the ownership to the new owner and get a payment in return.
You need to be at least 65 years of age to be eligible for a life settlement. Moreover, there are some other conditions as well that must be met. For example, the death benefit must be at least $100,000.
Selling your life insurance policy will provide you with more cash than surrendering it. On an average, it can be five times the amount you’ll get if you surrender the policy. However, the total amount you make depends on several factors including the terms of the policy.
In addition to this, the age of the policy is also of huge importance. In simple words, the older you are, the more value will be attached to your insurance policy.
Whole and universal policies can get you a good amount of money if you sell your insurance. Moreover, you may also be able to convert your term policy into a universal policy, if you wish to sell it.
While selling your policy is better than surrendering it, only an experienced financial expert can tell you the difference in terms of figures. Visit Mason Finance for more update.
