Can I Convert Whole Life to Term Insurance?
Can You Cancel Permanent Life Insurance?
If you are looking to cancel your coverage instead of converting, read below before you stop making payments – it could save you thousands of dollars.
There are two options to end your coverage without replacing it with a more affordable term policy: cancel and request the surrender value, or sell it to a third party. These options result in you getting money back. Surrender value is a cash payout composed of your policy’s cash value that has been accumulated minus any surrender fees and penalties your insurer may charge. It’s important to consult the fine print of your contract before canceling with your insurer and requesting the surrender value – the penalties and fees can be expensive. Part of the premiums you have paid towards your policy have been accumulating value in the cash fund portion of your insurance. While there may not be much value in the first few years, if you have been making payments for a long time, the cash accumulated could be thousands to tens of thousands of dollars. If you are not interested in converting and putting that towards a term policy or a reduced paid-up option, make sure you are getting some of that money back.
If you decide to sell to a third party, that is often referred to as a life settlement. Like any other asset, permanent life insurance can be sold. The buyer will take over the premium payments and become the new owner of the policy. When the insured (you) passes away, they will collect the death benefit. While the burden of premium payments will be off your hands, this option means your buyer collects the death benefit, leaving your beneficiaries without financial protection. Most life settlement buyers are interested in buying a policy from someone age 65 or older who is in poor health. They may not offer you the face value either – you may only be offered as little as 25% of the policy’s face value, whereas converting will still provide you with some coverage and a death benefit. Like any sale, there will also be taxes and fees involved. There may be heavy commission fees and you will likely owe tax on any amount you make from selling. If you want to learn more about if you can cancel permanent life insurance and the best way to do it, you can read our article on the subject here.
If you do not want to convert, the best option is typically to cancel and claim your policy’s surrender value from your insurer. When making financial decisions about your assets, including your life insurance policy, it’s important to consult your financial advisor or an insurance agent. Since everyone’s situation is different, it may help to give us a call and walk through the best options for you. Call us at (800) 521-7873 and tell us a bit about your current financial situation and your coverage needs, and we can explain your options.
