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Feeling uncertain about your financial standings? Turns out that you might not be alone, as recent studies show that about half of all Americans say their costs and debts are equal to their entire income, leaving them stressed and concerned. In fact, it’s not just a matter of worry, as psychological research has shown this stress can cause physical pain and can even be a strain on your overall health. Financial insecurity can happen to anyone, but retirees and senior citizens are at specific risk. While you may have done your due diligence in planning for your golden years, unforeseen expenses and changes to lifestyle can easily leave you scrounging for cashflow. For that reason, surrendering or giving up an unused life insurance policy is a great strategy to find some extra income. Unsure of how to get started? Check out this brief primer on how it all works.
What Does It Mean To Surrender a Life Insurance Policy?
Life Insurance policies like whole life or universal life will actually accrue cash value over time. The longer a policy is held by the owner, the larger this reserve of savings grows. Choosing to surrender a life insurance policy simply means you’re cancelling it entirely. If you choose to cancel or surrender life insurance, your agent will simply have you fill out some paperwork, and you’ll receive the cash surrender value from the life insurance company.
Why Would I Surrender My Life Insurance Policy?
Unexpected costs are always lurking around the corner, and that is especially true for those in retirement. Without a dependable source of income, seniors often need to heavily budget their savings to make it last; unfortunately, if something were to happen, this could leave an individual or couple in dire financial straits. Some reasons to surrender a policy are:
- Unforeseen medical expenses, such as surgery, injury, or the need for long-term care.
- Sudden repairs for a house, perhaps caused by an accident or faulty work.
- Unneeded coverage as one’s life changes; as children move out and become financially independent or a marriage ends due to divorce or death, a life insurance policy may not be needed to ensure next of kin are supported.
- Less expensive coverage found after comparison shopping; with the many online tools for finding the cheapest and most effective insurance plan, it’s common to find that you have been paying too much for coverage you may find from another provider.
Are There Any Fees or Drawbacks to Surrendering a Life Insurance Policy?
In terms of taxes, surrendering a life insurance policy is not viewed much differently from regular income, so it’s subject to a marginal rate of taxation. If a policy is ended after 20 or more years, the cash return is likely to be much higher. However, if the policy has only been in place for 10-15 years or less, your provider may issue surrender fees, similarly to if you were to pull out of an investment. If you’re unsure about these fees, your broker will be able to set expectations and let you know where your policy currently stands.
Cancelling a life insurance policy you no longer want or need can be an excellent way to put extra cash in your pocket. You may need this money for cost of living increases or even to fund a long-dreamed of vacation.
However, there is another way to even further maximize this source of income: a life settlement. Did you know you can sell all or a portion of your life insurance policy, even term insurance? Working with the experts at Life Settlement Advisors, you can actually find a buyer for your life insurance policy and get as much as 4-8 times the cash surrender value. If you’re interested in getting more for your life insurance policy, contact us today.
Case Study: Ann divorced many years ago and had been holding on to her life insurance policy until her children graduated from college and obtained good jobs. She asked her financial advisor, “Can I sell my life insurance policy?” Ann’s financial advisor informed her that she could sell all or a portion of her life insurance policy, even term insurance. Ann sold her policy for $55k and used the money to help fund her grandkids’ college educations.
Life Settlement Advisors