Man looking at his life insurance plan

How Do You Get Out of a Life Insurance Policy?

When you take out a life insurance policy, it’s often for a good reason. After all, ensuring your loved ones have financial stability in the event of your death is perhaps one of the most critical things you can do for them. But as you get older, you might begin to question whether or not you need your policy.

If this is a situation you’ve found yourself in, you’re probably wondering how canceling a life insurance policy works and what your options are. You might even be curious if your reasons for canceling your insurance policy outweigh any potential benefits. Keep reading to find out about all of this and more.

Should I Cancel My Life Insurance?

Whether or not you should get rid of your life insurance policy depends on your unique situation. For example, can you still reasonably afford your premiums? Do you have loved ones like a spouse or children who count on your income? Do you have savings or additional funds to cover your end-of-life expenses? With these questions in mind, here are some of the primary reasons why individuals decide to cancel their policies.

  • Your Premiums Are Too Costly: This is the number one reason to cancel your life insurance policy. If paying your premiums has become a financial burden, it may be time to reconsider your policy. This is especially true for seniors who are living on fixed retirement incomes.
  • You’d Like to Diversify Your Investments: For some retirees, it makes more financial sense to invest the money they’d spend on premiums into higher-yield investments. Working with an experienced retirement or financial advisor can help you make the right financial decisions.
  • You Need Liquid Capital: Life happens, especially when we least expect it. When you have a medical emergency or any other costly, unexpected situation, you may find yourself needing to make decisions about your life insurance policy.
  • You’re Struggling With Inflation and the Economy: The last several years have been unprecedented, and you may find that your investments aren’t going as far as you want or need them to. With food prices rising an average of about 9.9% in 2022—with forecasted averages for another 7.9% in 2023—it’s getting harder to get by. Getting rid of your life insurance policy may put more money into your pockets now.
  • You Don’t Need Your Policy: Even if none of the above describe your situation, you may simply not want or need your policy any longer. If you don’t have dependents and you have enough in your savings to cover your end-of-life expenses, a life insurance policy may be unnecessary. Canceling it can provide you with more money now to travel or invest in your retirement life.

What Are My Options for Getting Rid of My Life Insurance Policy?

If you’re looking to get rid of or cash in your life insurance while you’re still alive, you have three primary options: lapse your policy, cancel or surrender your policy, or sell your policy via a life settlement. Before we examine these, it’s important to note that you should discuss any major financial moves with a qualified advisor. They can help you understand how changes to your life insurance policy will affect you and your beneficiaries.

Lapse Your Policy

Lapsing your life insurance policy occurs when you stop paying the premiums on it. Once you’ve passed the missed payment grace period, your policy will lapse and you will no longer have coverage. While you’ll no longer be responsible for paying premiums, you do not receive any sort of payout when you let your policy lapse, so this is not your best option from a financial perspective.

Surrender Your Policy

When you surrender your life insurance policy, you are effectively canceling it for the surrender value. 

In other words, if you’re wondering if there’s a difference between cancellation and the surrender of an insurance policy, there’s not—the two terms are synonymous. To surrender your policy, you’ll need to work with your life insurance provider to ensure you’re taking all the appropriate actions.

How much can you expect to get when you surrender your life insurance policy for the cash value (also called the surrender value)? The number will vary based on the amount of premiums you’ve paid, any capital gains, and the surrender fees charged by your provider. It is important to note that not all policies have a surrender value. For example, most term life insurance policies do not have a surrender value unless you have a return of premium rider or a convertible policy.

Sell Your Policy 

Finally, you may be eligible to sell your policy via a life settlement. With a life settlement, you sell your policy to a third-party investor. You receive a one-time payment while the investor takes over paying the premiums and receives the death benefit in the event of your passing. While the exact amount of money you may receive will vary based on the specifics of your policy and your situation, most life settlements return between four and seven times the amount of a policy’s cash value. On a policy with a surrender value of $5,000, that means a life settlement could offer more like $20,000 to $35,000!

So how does it all work? The first step is to find out if you qualify. You can easily use Life Settlement Advisors’ life settlement qualification calculator to determine your qualification score. In general, however, the ideal candidate is a male or female in their mid-70’s or older who has had a change in health since their policy was issued. Term policies can be sold as long as they are convertible.

Make the Most of Your Unwanted Life Insurance Policy with Life Settlement Advisors

If you’ve decided it’s time to get rid of your life insurance policy, it’s important to receive the best financial return possible. For most qualified individuals, that means turning to a life settlement. 

At Life Settlement Advisors, we’ve been helping people just like you complete the life settlement process for more than 23 years. If you’re ready to learn more about life settlements, complete our life settlement qualification calculator or reach out to us today for a free, no-strings-attached consultation. Simply fill out the contact form or call us at 1-888-849-0887.

Get in touch with Life Settlement Advisors today to take the first step toward converting your policy into cash.
Life Settlement Advisors
Leo LaGrotte
At Life Settlement Advisors, we strive to be a voice of confidence and assurance for our clients. Our goal is to educate you about the life settlement process so you can make an educated decision about whether it is right for you.