Can I surrender a life insurance policy?
[social_share]Life insurance policies may sometimes stop being worth the premiums paid, at least from the policy holder’s perspective. This can often be the case when there has been a sudden change in family circumstances.
There are a number of reasons why a life insurance policy may no longer be worthwhile. This may include divorce or the death of a dependent, particularly the one named as beneficiary. There may also have been some change in financial circumstances, such as the sale of a business with loans guaranteed by the life insurance policy, or the receipt of an inheritance, which removes some of the financial dependence from the policy holder’s position. This is often the case when a life insurance policy to back up a mortgage or business loan was purchased and is no longer necessary, while an original policy remains in force.
In this situation, there are a number of options. Even if no longer strictly necessary, the life insurance policy may be a good investment, and while the original policy holder may not be willing to continue paying the premiums, another member of the family or several may wish to do so. This change in who pays the premiums can be made on an informal basis with the bank. The beneficiary may also need to be changed in these circumstances, and this can be done through the insurance company which will have procedures established for this purpose.
Such an arrangement, with a change in payee and beneficiary, is also common with old policies which do not have a lot of time left to run. As people age, illness and eventual death become inevitable; however, the premiums remain the same throughout the term of the policy. For this reason, older policies are usually more valuable than younger ones, with the beneficiary generally more willing to cover the expense of the premiums.
Another option for a policy that’s no longer worthwhile is to sell it to someone else through a broker. This works on the same principle as letting someone else keep up the premiums, except that instead of passing this off to a relative, it is a complete stranger who pays a capital sum to capture the increased value of the older policy.
Finally, there is the option of surrender. It’s often the case that the life insurance company will pay for the surrender, but as this is a closed market, the prices will usually be lower. It is however administratively easier to arrange and complete.
