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Are You Ready to Surrender?

Life insurance policies often have a value beyond their death benefit. Whole (or permanent) policies also accrue something called cash value. A policy’s cash value is the accumulation of premium that is paid over the policy’s cost of insurance. These cash reserves accrue and gain interest and can be borrowed against.

Sometimes, when people get a job that offers them a group life insurance policy, they decide to “surrender” their existing life insurance policy. That means they stop paying the premiums and instead ask for the policy to be cancelled and a check written to them for the amount of the policy’s cash value.

But surrendering a life insurance policy is a big decision, and if you are considering it, you should think about the following:

  1. How expensive will it be to replace the policy? Sure, you might have a cheap group life insurance policy while you are with this employer, but once you leave you generally cannot take the policy with you. So how expensive will it be for you, with your increasing age and worsening health, to get a new life insurance policy? Compare life insurance rates now just to get an idea.
  2. Can you afford a new premium if you lose your job? After a job loss, you might not be able to afford a new premium – but the cash value you’ve accrued in your existing policy can work as a loan to pay your premium until you are employed again if you keep your current policy.
  3. Can you get another policy? If you leave your employer and lose the group life policy, will you even qualify for a new policy? Some health conditions and medication combinations could result in underwriting declining your application.
  4. Are you ready to go through another contestability period? After two years, there is very little your life insurance company can contest when your death claim comes in. If you let go of your existing policy and eventually leave your new employer and lose that shiny new group policy, then you might need to take out a graded death benefit policy that affords your heirs no benefits for the first 12-24 months no matter how your death occurs.

Don’t take chances with the financial future of your family. Keep your insurance policies and don’t expect a group insurance policy to be a life-long solution. If you don’t already have your own life insurance policy, get a quote for life insurance coverage today.


February 8, 2011



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