Should you surrender your life insurance policy or should you sell it? Either way, you will want to make your decision based on your goals and the amount of cash that will end up in your pocket. As a general rule, the decision to surrender your life insurance policy means you will deal with your insurance company and the cash in your pocket will be based on the policy's cash account or a contract provision for an accelerated death benefit. If you choose to sell your life insurance policy, you are dealing with a third-party company or a private investor (not the life insurance underwriter) and you are likely to receive more cash than you would by surrendering the policy. Either way, you receive cash that you can use for virtually anything.
Here are a couple scenarios that depict common goals among those weighing the decision either to sell or to surrender their policies:
One common scenario involves the parent with several children who requires the security blanket of a life insurance policy, in the event of that parent's death. As time goes by, the situation changes and it becomes doubtful that the children continue to need the death benefit. The children may have become older and more financially secure. The insured person (who is both the owner of the policy and paying the policy premiums) may discover that his or her own financial situation or health has changed and the life insurance has become expensive and burdensome. In both situations, the policy owner decides that the policy is no longer needed because their financial needs or goals have changed.
Another possible scenario involves a business owner or an investor whose life insurance policy played a vital role in their original business plan or investment plan. Perhaps, the health of the business or the value of the investment portfolio has declined so much that income from the business or the investments is no longer available to pay the insurance premiums. Once it becomes impractical for one's business or investments to continue to support the policy, the policy is converted to cash by selling it or by surrendering a life insurance policy. The goal is the get the most cash possible, so the policy is sold rather than surrendered.
If you--or your business--are currently in a state of a financial shift or a financial loss, you may want to restructure your life insurance plan. Seek a qualified person to discuss in greater depth which option is best for you--to sell your policy or surrendering your life insurance policy.