You may have got convinced into buying an expensive permanent life insurance policy like a whole life or universal life a while back and now realize you may have been better off simply getting a term life insurance policy. Or you simply can’t afford to pay your cash value life insurance plan anymore and want to know what you can get out of it if you cancel. Whatever your reason for canceling we are going to address everything you need to be aware of and some possible better alternatives to canceling. So let’s get started!
Getting Cash Value from your Policy
One of the main reason people sign up for permanent life insurance policies is that they are told that the plan will create an accumulation of money that will grow with interest. Although, this is possible it is not likely since most of your cash value will get eaten by agent commissions, admin fees, and miscellaneous cost. Plus add the fact that the returns are minimal and you won’t have much to go home with. The only time these policies generate anything worthwhile is if you can overfund them by paying more per month. In my entire career, I have never seen any client brag about the cash value accumulation but rather complain of the lack of it.
But let’s say that you have some cash value accumulation and would like to know what happens if you cancel? Well, you’ll actually get your money unless of course there are surrender charges. Yes, these are fees that are a penalty if you cancel your permanent life insurance policy within a certain time frame. The younger the policy the more likely the fee can be greater or equal to the actual cash value, besides most surrender charges can last up to a decade or two so unless your policy is pretty old expect to get hit pretty hard.
In the event that you call the insurance company and tell them that you’d like to surrender the life insurance policy and they say that you will have a nice sum available after any fees, prepare to deal with taxes. See life insurance cash value actually grows on a tax-deferred basis so once you pull it out it becomes taxable income. But don’t feel bad since you’re one of the few people that actually get to see some cash with these type of policies and that is something to rave about.
What else can you do?
Before you cancel your whole life or universal life plan whether or not it has cash value, you need to consider some alternatives. If you actually like that you have a lifetime protection with a solid amount of coverage but you simply can’t afford it for a few months there may be a way out. Call your insurance provider and they may be able to use your existing cash value to pay the monthly premiums, that way your policy will not have to lapse and you can continue to have insurance. You can also reduce the coverage amount if the premiums are too high for you in the case you have a universal life policy.
Another cool option that you may not be familiar with is selling your policy. That’s right, life insurance is an asset that will pay out large dividends upon your death and because of this, there is an entire market for this. There are large investors or investor groups that buy up life insurance policy and hold them until they pay out the death benefit. I actually talked with a few people that got a decent amount of money by selling their policies instead of not getting anything at all because their cash value would have been eaten up by surrender charges. Obviously, the older and sicker you are the more you’ll get for the policy since your life expectancy decreases which means the sooner the investors can see returns.
What should you replace the canceled policy with?
If you decide to cancel your life insurance policy and you still want to protect your family there are certain life insurance policies that you need to be looking at. Most popular of course is a term life insurance policy which is very affordable and can be secured up to 30 years. This plan will not build cash value but it provides a large amount of coverage for the certain timeframe in exchange for a low monthly premium. It is also a very simple plan to understand and is quite straightforward. Although you may hear this a lot it is better to buy term and invest the rest in most cases.
For individuals that would like to have a lifetime protection but don’t care about cash value or high monthly premiums, there is a great product. It is called a Guaranteed Universal Life or No Lapse Universal Life and this is the most affordable form of permanent life insurance plan. Although it will not accumulate large sums of cash value it will provide a lifetime protection for you and your loved ones.
Not to toot my own horn but I know a thing or two about life insurance and the only policy worth getting if you’re interested in getting investment returns is a Variable Universal Life Insurance policy but be aware that you need to be an experienced investor. This policy allows you to invest in stocks and get the benefit of tax deferral of a life insurance policy.
Let Us Help
Need help figuring out what to do with your existing policy or need to replace it with a better option. Well, you’re at the right place, here at InsureChance we work with over 60 top rated carriers to only offer you the most competitive options. And unlike most other agencies our clients are more important than the bottom line. The best part is, that our service is completely free of charge and we don’t practice any sales gimmicks. So feel free to call us at 888.492.1967 or compare rates with one of our quoters now!
