Will I lose most of my premium payments if I surrender my life insurance policy?
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Asked March 19, 2012
Surrendering a life insurance policy is an option during hard financial times, but you may not be able to recoup much of the premiums you have paid in. You will be entitled to receive some of your premiums back, but a lot of those premiums will be applied to processing charges, and after your policy termination fees are added to the equation you probably will not see much of your money come back to you.
Instead of surrendering the policy, you might be better advised to either sell or auction the policy. By selling the policy, you basically transfer the money paid into the policy to the purchaser, so you can receive most, if not all, of your premiums back. In some cases, you may even show a slight profit after auctioning the policy, but if you are able to simply break even on giving up the policy you will have come out better than most.
If you have a whole life policy, borrow against the policy to make your premiums and keep the policy in force. By borrowing against the policy, you can use the accrued cash value of the policy to make the premiums or to help you get past other financial difficulties without losing the policy itself. And since the money in the policy belongs to you, there is no qualification for the loan, credit checks, or any of the costs normally associated with getting a loan. The loan is even tax-deferred, which means that you are not immediately taxed for the withdrawal from the policy account.
Surrendering a life insurance policy will result in losing a majority of the premiums you have paid in, but there are other options, both in terminating the policy or using the policy to get through hard times, that can keep the policy in force and still aid you in your current hardships.
Answered March 19, 2012 by Anonymous