The Surrender Value of Life Insurance

The Surrender Value of Life Insurance

Life insurance policies are very long-term commitments, premiums usually have to be paid for at least ten years and the money is often invested in order to reduce future premiums and to add to the cash value of your policy. However, this can mean that if the policy is cashed in early it may lose some of its value, there are a few options you could explore if you think you may have to cash in a policy early.

Your insurance company may be able to grant you a loan rather than surrendering the value of the policy, and more often than not the rate of interest will be competitive. You should remember that it is not necessarily in the insurance company's interests to cash in your policy early, and they probably will do their best to help you out. Alternatively, if you are suffering difficult financial times you may be able to make the policy 'paid up' this means that you will stop paying premiums in the short term, but still may experience the benefit of the policy in the future, although obviously at a lower level.

If you have to cash in a policy you might be able to sell it off in a specialist auction. The cash-in value will be lower than the payout at the end, and therefore it might be possible to get more money from selling it than you would from cashing it in. This can be a risky business, and therefore it might be best to check with a professional before you choose to go ahead with it.

If there really is no alternative apart from to surrender your policy you should discuss it with your insurance company or financial adviser. Always make sure that you get a written quotation of the value from the insurance company before you make a final decision. Another thing that you should be wary of is if you are recommended to surrender a policy with one company and take one out with another company. This is a type of insurance fraud called 'churning' and usually involves you making a financial loss somewhere along the line.

If you do choose to surrender your policy your insurance company will have to cover all of its costs. These can be quite expensive, and have to be met whether you keep the policy for its full span or if you surrender it early. If you surrender early in the lifespan of the policy you will get back a little or a lot less than the premiums you have paid, and sometimes there may be a caveat in the contract that nothing at all is payable to you if you surrender the policy very early.

Due to the fact that you continue paying premiums throughout the lifespan of a policy, the surrender value can change depending on when you choose to cash in the policy. Insurance companies have to be sure that they can meet their commitments to policyholders, and therefore have to plan ahead, when they don't there can be high profile collapses. It is not unusual for insurance companies to change surrender values, both because of the value in the policy, but also because they have to balance their assets with their liabilities and an early surrender definitely classes as a liability.

Life insurance does not have to be an expensive commodity, and even if you are operating off a tight budget at the moment the provision that a good life insurance policy can make for your nearest and dearest could offer invaluable peace of mind.

by Ramond Verde

Tags: Surrender, Value, Life Insurance, good