How Do I Surrender My Term Insurance?

If you are considering surrendering your life insurance policy, it is important to understand the implications and explore your options to maximize its value. When you surrender a policy, you effectively cancel your life insurance and receive a cash payout for the policy’s cash surrender value, which is the balance in your policy’s cash value account minus any surrender fees. However, surrendering a policy is not always the best option, especially for term life policies because they do not have cash surrender value.

Table: Cash Surrender Value by Policy Type

For older whole life policies, surrendering may provide a higher cash surrender value because the cash value in life insurance builds up slowly at first but picks up momentum over time. Additionally, surrender fees are usually high in the early years of the policy and gradually phase out over time. A young policy may have a low cash value balance and high surrender fees, resulting in a small or nonexistent cash surrender value.

However, surrendering a life insurance policy is not advisable because selling it yields a far greater value. Selling your policy is known as a life or viatical settlement, and it involves exchanging ownership of the death benefit to a third-party buyer for a lump cash sum. The value of your policy on the secondary market is always more than its cash surrender value, usually two to four times more, and in some cases, the sales price can be as high as 60% of the policy’s death benefit.

The process of selling your life insurance policy can take two to four months and involves working with a life settlement company or broker who can market your policy to multiple buyers, create a package of information, and manage several rounds of bids and negotiations to get the highest possible offer. You can sell your life insurance directly to a provider, but this limits the value you get because you only get a single offer.

If you are considering cashing out your insurance, we strongly recommend selling it over surrendering it to ensure you get the highest value for your policy.