Whole life insurance policies can provide valuable financial protection to your family when you pass away. But they’re expensive and can be a financial burden if you no longer need coverage or feel you purchased the wrong policy. Thankfully, whole life insurance policies are a form of cash value insurance, meaning you can recoup a portion of the premiums paid through a few different methods. However, the amount of money you can get back will depend on your health and how long you’ve had the policy.
Go for a life insurance settlement
One of the best ways to get the most money out of your whole life insurance policy a life insurance settlement. In this case you essentially sell the policy to a third party, usually a company that specializes in these deals, that takes over premium payments and becomes the beneficiary. Your only relation to the policy after a life insurance settlement is that you remain “the insured,” meaning that the third-party buyer won’t receive a payout until you pass away.
A life insurance settlement can net you the greatest amount of money because your payment falls between the policy’s net cash value (the minimum, which you could get from the insurer) and the death benefit (the maximum). You’ll have to pay taxes if the settlement is for a larger amount of money than you’ve paid in premiums but, in this case, you still get a positive return.
The only downside to a life insurance settlement is that it can take awhile to find a buyer and, even then, it may decide to not purchase your policy. You’re much more likely to sell your whole life insurance policy if you’re older, a smoker, or unhealthy, as the settlement company expects it will have to pay premiums for a shorter amount of time. You also need to be careful if you use a broker to locate a settlement company because it will often take a cut of the payment. So, determine its rates before proceeding.
You can surrender the policy to the insurer
If you can’t get a life insurance settlement or need to get rid of your policy more quickly, you can return it to your insurer in exchange for the policy’s net cash surrender value. This process is called surrendering your policy and it terminates your relationship with the insurer.
Depending upon how long you’ve had your whole life insurance policy, you may receive very little money in return for surrendering your coverage. A whole life policy’s cash value is quite slow to accumulate in the first years of coverage, and most of the growth actually occurs after you’ve had the policy for a couple of decades. In addition, insurers tend to have high surrender fees that will reduce the amount of money you receive for the first 10 to 15 years of the policy being in place.
However, if you decide to surrender your coverage, it’s a fairly quick and simple process. You complete some forms and the insurer will deposit the money in your account.
Should you get rid of your coverage?
As you know, whole life insurance is quite expensive; this might actually be the reason you’re considering getting rid of your policy. But if you’re on the fence regarding surrendering your coverage or think you might want to get a policy later on, you may want to first ask your insurer about your options.
The key benefit to not getting rid of your coverage is that you maintain the option of having life insurance later on. As you get older, quotes for new whole life insurance policies will increase dramatically. Or, you simply might no longer qualify for coverage if you are diagnosed with a medical condition. Life insurance companies want to keep your business and will often provide the option of reducing the size of the policy or converting to a different type of policy. This can make the cost of whole life insurance more affordable while giving you the option of keeping your coverage.