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What is "cash surrender value"?
Cash surrender value is the amount that an insurance company will pay a policy owner to surrender or turn in their unwanted life insurance policy. Cash surrender value of life insurance is essentially the amount an insurer will pay for someone to “walk away from a life insurance policy" they own and discontinue their insurance. This is an important concept to understand as it is one of the 3 options available to someone who no longer wants their life insurance policy. The other two options for unwanted life insurance policies are a life settlement or to simply let a policy lapse by not paying premiums.
Surrender Life Insurance Policy - Why would an insurance company do that?
Surrender Life Insurance Policy? Why would an insurance company allow their policy owners such an option? Life insurance companies generate revenue and in turn make a profit by collecting premiums from life insurance policy owners. Those premiums are then pooled together and invested by the life insurance company in things such as stocks, bonds, real estate, etc. to generate investment income for the insurance company. In addition, a portion of the life insurance premiums are used to run the insurance business and pay for things such as salaries, rent, insurance agent commissions and other normal business operating expenses. Finally, the premiums are used to pay life insurance claims to beneficiaries when an insured dies. If an insurance company can collect premiums or money for a life insurance policy that never results in a claim or payment of a death benefit, it will make more profit. It will have collected money, but never incurred the major expense of paying the full life insurance death benefit to a beneficiary. By offering the cash surrender value of life insurance, the insurance company is incentivizing the policy owner to forfeit the policy before the insured dies. Essentially the insurance company collects money and never has to pay the claim. The small cash surrender value offered by the insurance company is usually far less than the death benefit of a policy. Thus, the insurance company’s preference is always for a policy owner to return a policy for the minimal cash surrender value instead of the policy resulting in a much more costly claim. The life insurance company would prefer to pay a little bit of money now rather than a lot of money in the future.
Surrender life insurance policy – What are the other options?
Surrender life insurance policy, a good option? Typically the cash surrender value is a very small percentage of a life insurance policy’s death benefit amount. People who receive the cash surrender value of life insurance are said to get pennies on the dollar of a policy’s true value. Surrender life insurance policy, how much will you get? In many cases, the amount received when surrendering life insurance may be the same or close to amount of cash value that has built up in a policy. In some cases an insurance company imposes fees to surrender life insurance policy. These fees vary, but are usually related to the length a policy has been in force. While the cash surrender value of life insurance is not much, it is certainly more than allowing a policy to lapse. When life insurance policies are allowed to lapse, the policy owner receives nothing. The only benefit is that the policy owner no longer pays premiums. So in that respect, the cash surrender value of a policy is better than nothing. In fact, almost 90% of Universal life insurance policies never result in a claim. Meaning the insurance company never has to pay beneficiaries in over 89% of the cases because the policy owner allowed the insurance to lapse or collected the cash surrender value.
Surrender Life Insurance Policy – There Are Better Options
For those policy owners that take the cash surrender value of life insurance or let the policy lapse, they are missing out on an opportunity to get even more than through a life settlement. Life settlements are reported to pay 200%-500% more than the cash surrender value on average. The choices go beyond A) Surrender life insurance policy or B) Let it lapse. A life settlement provides a 3rd and in many cases more attractive option that may pay the policy owner more. By allowing potential buyers in a life settlement to bid on a policy, its true market value will be discovered. Then and only then, will a policy owner know if accepting the cash surrender value is the best option or if someone else is willing to pay them more than the insurance company will to surrender life insurance policy.
Surrender life insurance policy? If you are thinking about returning your policy to the insurance company, we encourage you to first try a free, instant life settlement appraisal.
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