Did you know you can sell all or a portion of a life insurance policy, even term insurance?
If you have a life insurance policy you no longer want or need, you may be interested in what your options are. You might be aware, for example, that you can surrender your policy for its relatively small cash surrender value.
To provide a more enticing offer, some life insurance companies have started sending letters to policyholders with a “limited time” offer to receive an enhanced cash surrender amount. We’re exploring if enhanced cash surrender offers are actually a good deal and what other options you should be aware of. But first, let’s quickly review what surrendering a life insurance policy means.
What Does Surrendering My Policy Mean?
Surrendering a life insurance policy means that you are essentially terminating or giving up the policy. When you surrender it, you take the surrender value of the policy and stop paying monthly premiums. In return, your policy will be terminated and you will forgo the death benefits for your beneficiaries.
How Much Will I Receive If I Surrender My Life Insurance Policy?
It is important to understand that the surrender value of a life insurance policy is different from the cash value, and it is often significantly less. While the cash value reflects your premium payments and any interest they have earned, the surrender value is simply how much you get when surrendering your policy.
Several factors are in play when it comes to determining how much the cash surrender value of a life insurance policy is. These factors include:
- How long you’ve had your policy
- The amount of interest or gains that have been earned by the cash value of the policy
- The amount of surrender fees and charges your insurance company assesses
What is the surrender value, on average? Recent estimates conclude that the average surrender value of a policy is only $460 for every $100,000. To provide a more enticing amount, some life insurance companies have started to offer limited-time enhanced surrender values to certain policyholders.
What Is Enhanced Surrender Value?
Essentially, the enhanced cash surrender value meaning is that your insurance company will offer more than the cash surrender value of your policy, typically only for a limited time. These offers allow life insurance companies to release reserved funds being held for death benefits by paying an increased surrender value and terminating the policy. According to Bryan Nicholson, executive director of the Life Insurance Settlement Association, these enhanced surrender values are often between two and ten times that of a standard surrender amount.
What might an enhanced cash surrender value example look like given these numbers? Let’s assume a policyholder has a $200,000 insurance policy. The standard surrender amount may only be $920. The enhanced surrender value, however, could be between $1,840 and $9,200. That’s a pretty significant gap, but it’s certainly a higher offer than the traditional surrender value—which is why it can be a tempting offer.
However, what life insurance companies may not be telling you is that selling your life insurance policy through a life settlement could yield an even larger payout if you qualify.
Are there Other Options for Selling Your Life Insurance Policy?
Yes! Policyholders need to be aware of another option for their life insurance policy called a life settlement. In a life settlement, policyholders sell their life insurance policy to a third party. That third party purchases the policy, assumes paying the premiums, and receives the death benefit at the time of the original policyholder’s passing. In return, the policyholder receives a one-time lump sum payment.
How do life settlements compare to surrender values? In 2020, the average life settlement yielded approximately 20% of the policy’s face value. Looking at our example above, that means that the $200,000 life insurance policy might yield closer to $40,000 through a life settlement. That’s substantially more than the numbers for a surrender value—even an enhanced surrender value.
Life Settlement Advisors: Helping You Reach Your Financial Goals
Before agreeing to surrender your policy, even for an enhanced surrender value, reach out to a trusted life settlement company like Life Settlement Advisors to talk through all your options. Get started today by filling out a brief life settlement calculator to determine if a life settlement can help you meet your financial goals.
Did you know you can sell all or a portion of a life insurance policy, even term insurance? Selling an unwanted life insurance policy is no different than selling your car, home or any other valuable asset that will create immediate cash. Contact us today to learn more.
Get in touch with Life Settlement Advisors today to take the first step toward converting your policy into cash.
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