If you’re thinking about surrendering or canceling a life insurance policy, it might feel like you’re in uncharted territory—and you probably have plenty of questions. This blog is meant to help answer them! Let’s get right to it.
What Is the Difference between the Cancellation and Surrender of an Insurance Policy?
As they relate to an unwanted life insurance policy, “surrender” and “cancel” are essentially synonymous. In most cases, if you decide to cancel your policy—meaning you’ll no longer be on the hook to make regular premium payments—you can expect to receive the policy’s surrender value. You should know, however, that insurers are likely to apply surrender fees (which cut into the cash you could otherwise expect to receive). Speaking with your insurance company is the best way to get a more specific estimate of how much you can potentially receive as the surrender value.
How Can a Life Insurance Policy be Canceled?
To cancel a life insurance policy, you can simply stop paying the premiums and inform your insurer that you’re canceling the policy. This usually means writing a letter, but you might also be able to fill out an online form or speak with someone over the phone. You can consult your policy documents or contact your insurance provider for the specific details of your plan.
Can You Cancel Life Insurance at Any Time?
Technically, yes. At any time you choose, you can opt to either surrender your policy or let it lapse (which is when you simply stop paying the premiums, like a more passive version of cancellation). It’s important to note, though, that you won’t get your premiums back if you’ve had the policy for longer than its initial “free look” period. If you’re beyond this point (10-30 days, typically), you won’t be able to recoup those funds.
Another option for an unwanted or unneeded policy is to sell it to a third party through a life settlement, which we’ll explain shortly. We’ll note, though, that to qualify for a life settlement the policy needs to be at least two years old.
Is It a Good Idea to Cancel a Life Insurance Policy?
It’s not generally advisable to outright cancel or surrender a life insurance policy. This is primarily because you stand to lose value on the policy, meaning what you get back is likely to pale in comparison with what you’ve paid into it.
There may also be tax consequences in certain cases. Usually, this applies when the amount you receive back exceeds the amount you’ve paid in premiums. The difference between those values—specifically, how much your return exceeds past payments–is what would be subject to taxation.
What Is a Good Reason to Cancel a Life Insurance Policy?
There are really two main reasons people explore the option of canceling their life insurance policy, each of which relates to changing life circumstances. These reasons are:
- You no longer have a need for the policy (no dependents that rely on a death benefit).
- You can’t reasonably afford to continue paying the premiums.
That being said, individual situations can be complex, so it’s always a good idea to consult your insurance agent before making a decision. Not only will they be able to help you crunch the numbers, they can also introduce other opportunities for extracting value from an unneeded policy.
How Can You Get Money Back from a Life Insurance Policy You No Longer Need or Want?
In addition to surrendering your policy or allowing it to lapse, you may be able to recoup substantial value from an unneeded or unwanted policy by exploring a life settlement.
What, Exactly, Is a Life Settlement?
A life settlement is an arrangement by which an unwanted life insurance policy is sold to a third party. As a result, the policy holder receives a lump sum payment from the buyer, who also takes over paying the remaining premiums and receives the death benefit further down the line.
How Do You Qualify for a Life Settlement?
In order to qualify for a life settlement, the following must be true:
- The policy is at least 2 years old (though some states may require policies to be at least 5 years old).
- The policyholder is at least 65 years old (or suffers from certain medical conditions if younger than 65).
- The policy’s death benefit is $100,000 or more.
- The policy’s premiums represent 5% or less of the policy’s face amount.
- Universal life, convertible term, whole life, and second-to-die policies can all be eligible (assuming the other conditions are true).
What Is the Life Settlement Process?
When you work with our team at Life Settlement Advisors, you can expect a straightforward, 5-step process:
- We’ll gather some information about your policy by asking you to use our online qualification calculator and provide additional policy details.
- You’ll fill out a life settlement application, which you can download from our website.
- We’ll review your application, as well as your policy details and medical history, in order to determine whether you ultimately qualify.
- We’ll make a settlement offer, based on everything we’ve learned.
- If you accept the offered settlement, you’ll receive a closing packet to complete and, once we’ve dotted all the i’s and crossed all the t’s, you’ll receive a lump sum payout.
Let’s Discuss Your Options
Now that you know you can sell all or a portion of your unneeded or unwanted life insurance policy, the next step is to connect with us. Learn more about your options, and how we can help, here. Or, you can download and complete our brochure/questionnaire to submit your case.