After I surrendered my life insurance, can it be reinstated?

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Asked June 24, 2014

1 Answer

If you find yourself in financial straits and decide to surrender a permanent life insurance policy, the insurance company will pay you the accumulated cash value of the policy minus any fees or penalties related to canceling the policy. The policy is then null and void, without recourse for reinstatement.

Surrendering a life insurance policy does not mean you can claim the face value of the policy, only that you are entitled to get the remaining cash value back. The cash value is only a small portion of the premiums you have paid in, plus interest earned by that amount. The face value, which is always much higher than the cash value, is lost because you have forfeited a legal contract.

If you later decide that you need life insurance again, you will have to reapply for new coverage, even if you purchase from the same insurer. At that time, you will be charged the current rates for someone in your age and health bracket. Since life insurance premiums go up as we age, you will not be able to reinstate the old policy because the rates charged on that policy are no longer valid.

A better idea is to borrow against the cash value of the policy to help you through tough financial times without losing your coverage. Some companies will even allow you to use the accumulated cash value to pay future premiums, effectively using the life insurance policy itself to pay its own premiums.

Some types of life insurance policies, such as final expense or term life coverage's, cannot be surrendered but must be canceled. With policies of these types, the only financial gain of canceling the policy is that you will no longer have to pay the premiums. Since there is nothing to be gained and only a small amount to be saved, it is usually not in your best financial interest to terminate such policies as long as you are able to make the premium payments.

Answered June 24, 2014 by Anonymous

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