All about surrendering and selling your insurance policy for cash
Besides buying insurance policies, you are able to sell or surrender your insurance policies as well. There are certain situations that you might encounter in your life that may require you to terminate your insurance policy.
For instance, you might suddenly need some extra cash or are not financially able to continue to pay for your policy. In other circumstances, you may have to deal with situations such as divorce or getting laid off from your job. These situations might leave you with no choice but to give up your policy.
Another possible situation is that your policy has reached a break-even point, this is when the cash value of the policy is equal to the premiums you’ve paid. When you no longer need the insurance coverage, one of the best time to discontinue it will be at the break-even point’. There are generally 2 ways to terminate or discontinue your insurance policy:
Surrender your insurance policy back to the insurer
Sell your insurance policy
Selling your insurance policy
When you sell your insurance policy, the recipient of your insurance policy will obtain all future rights and benefits from the insurance policy. In return, you will get financial compensations that are higher than the surrender value of the insurance policy. You will no longer have any associations with that particular policy anymore.
Selling your insurance policy will generally yield higher financial returns compared to surrendering it. The act of selling your insurance policy is also called an absolute assignment.
An absolute assignment is a legal transfer of all rights and benefits of an insurance policy from the current policy owner (Assignor) to the new policy owner (Assignee). Thus, instead of surrendering the policy for the cash value, you can transfer it to someone else to take over your policy.
Selling your insurance policy via Absolute Assignment
The process requires the Assignee to make a higher offer than the amount the Assignor would receive if they would surrender the policy to the insurance company. Financially, the Assignor will receive greater benefits (More cash) from an absolute assignment compared to a surrender. Here’s how it would look:
Assignor (You) – Gets a higher cash value than what the insurance company would have paid you when the insurance policy is surrendered to them.
Assignee – May continue with the policy until maturity or resell the policy to another buyer.
When deciding if you should sell your insurance policy, these are the pros and cons you should keep in mind:
Pros of selling your insurance policy
Higher cash value compared to surrendering your insurance policy.
Upfront payment (cash or cheque).
The overall process is relatively easy and quick.
Cons of selling your insurance policy
Loss of insurance coverage after the policy is transferred.
If the policy being sold is a life, endowment, or retirement policy, a third party may benefit from your death, subject to certain conditions.
Selling insurance policies is not regulated by the Monetary Authority of Singapore (MAS).
What insurance policies can be sold?
Typically, endowment and whole-life policies can be sold as they are assignable. Endowment policies are also known as Insurance Savings Plans. A policyholder typically pays a monthly or yearly fixed sum, until the policy ends. If the policyholder outlives the policy, they get the money back. If not, their dependents will get it.
On the other hand, Whole life policies are designed to provide coverage for the policyholder’s dependants after their death, usually in the form of fixed payouts. These are the most commonly accepted life insurance policies that can be sold:
Regular pay Endowment Policy
Limited pay Endowment Policy
Regular pay Whole Life Policy
Limited Pay Whole Life Policy
Insurance policies with surrender values
A life insurance policy with a policy loan taken or premium payment that has already lapsed may also still be sold.
How old does the insurance policy have to be before selling it?
In the case of endowment policies, they are more attractive when they have been held for a longer period, at least 1/3rd of its duration. However, some buyers might be interested to take over a newer policy if it is:
Limited pay (e.g. the premium payments are front-loaded to the first 5 to 10 years of the policy’s life, for a 20-year policy)
Single premium (i.e. the premium payment was made in a lump sum at inception).
Is my insurance policy still vendible if I missed out on premium payments?
In this case, it heavily depends on the extent to which these payments have been defaulted, such as the length of the period of default and the amount overdue.
Typically, there is a grace period for insurance policies of up to 30 days to make your payment from the last missed payment due date. If you still missed the payment after this grace period, your policy may likely lapse. Third-Party Insurance brokers like CapitaSafe do buy-in policies that have lapsed or have been converted to paid-up insurance/Extended Term Insurance from non-payment of premiums. We will have to reinstate the policy to its original form by paying up the outstanding premiums, subject to the terms and conditions of the insurer’s contract and window period.
That being said, in the situation that your policy has sufficient cash value from an Automatic Premium Loan (taken by the insurer against the cash value), your policy will not have been terminated. This is when you will most likely be able to sell your insurance policy. The missed out payments will probably be taken into consideration when the person purchasing your policy makes a valuation, which would result in a lower amount for you.
How do I sell my insurance policy?
You may be thinking that you need to go to your insurance company to sell your policy, but that will only be needed later on in the process. The first thing you should do is obtain a valuation that you are happy with by scouting out potential buyers. The entire process of selling your insurance policy will look something like this:
Find a fitting and reliable third-party vendor in the market.
Send in the relevant information requested by the vendor for the valuation. The insurance policy itself is the most important piece of document required for valuation. It should include information such as the start and maturity date, premiums, and surrender value. Vendors normally offer the valuation for free.
3. Review the offer
After the vendor gets back to you on the offer, you can choose to proceed with the sale.
The transfer of policy ownership will take place directly at the insurance company and can be completed in just 30 minutes. Once this is done, you will no longer have any outstanding liabilities under the policy.
Depending on the vendor, you should expect to receive upfront payment either in cash or cheque.
The alternative to selling your insurance policy
Surrendering your insurance policy
Sometimes, life can be unpredictable. For whatever reason, you might get placed in difficult situations that will give you no choice but to surrender or terminate your insurance policy. If you do not wish to sell your policy to third parties or if your policy is not saleable (there are no buyers for whatsoever reasons), then you will have no choice but to surrender it. However, surrendering your insurance policy is not the way to get the highest cash value from it.
What happens when you surrender your insurance policy
When you surrender a Life insurance policy, it can go one of two ways:
1. Your policy is a Participating policy
In this situation, your final cash value will be calculated based on the number of years that have passed since you purchased the policy. This is called a surrender value and all individual policies have their own surrender value. This surrender value is made up of a Guaranteed and Non-Guaranteed cash value.
2. Your policy is a Non-Participating policy
In this situation, there is no cash value. If the premium is already paid for the remainder of the year, there is use in surrendering or terminating the policy. Just let it continue until premium payment is required. By not paying the additional premiums, the policy will lapse and be invalid on its own when the premium is due again.
Once you have cashed out on your policy, you no longer have any future financial benefit or insurance coverage that the policy would have provided. After it is surrendered, you will have no relations to it whatsoever. Generally, the surrender or termination of a life insurance policy before its maturity will result in a financial loss.
What should I take note of?
When you surrender your policy to your insurance company, the money might take 7 to 10 days to be returned to you. When you sell your insurance policy, your payment will be made either through cheque or cash once the deal of the absolute assignment is complete. If you are unsure of how to go about either process, it’s best not to do it by yourself. Seek out professional advice to ensure that everything goes smoothly.
Do note that the trading of insurance policies is currently not regulated in Singapore or by MAS so ensure you get paid immediately. This is especially crucial if the offered payment is by cheque, for obvious reasons. You might also want to consider that you will be underinsured once you lose your policy.
You may consider taking on short-term fixed policies such as term insurance to protect yourself for the time being. Policies like this have no cash values and financial returns, therefore, the premiums are more affordable so you can still stay protected while you get back on your feet.
Surrendering your policy involves you directly terminating your policy with your insurance company, leaving you without any benefits. You will, however, receive a sum of money as you would from selling, depending on the policy type.
There are times when it would be most appropriate to surrender your life insurance, here are some situations in which it might make sense to do so.
1. A better deal is available
Although life insurance may rise as you age or you might develop new health issues, there’s a possibility that you’re able to qualify for more affordable policies now as opposed to when you first took your current one. For instance, your health might have improved significantly since then because you’re taking better care of yourself now like deciding to quit smoking. If this is the case, it could be worth your time and money to look around for better deals. Or as new plans are available in the market that fits your life plans better.
2. You aren’t able to pay the premiums
Permanent life insurance is much more expensive than term life insurance. If you can’t keep up with the premiums, you might be better off with a cheaper term life policy.
3. You no longer need life insurance
In cases where you find yourself no longer seeing any benefits of life insurance coverage, such as there is no one financially dependent on you anymore, it would make sense to surrender
4. You are desperately in need of a large amount of cash
If you have a major expense to cover or maybe a better investment opportunity but don’t have the cash on hand, surrendering a cash-value life insurance policy might be a good choice, especially if the above situation is also true.
What if I had included my insurance policy in my will?
In the event you had previously included the insurance policy that you have already sold in your will to gift the insurance proceeds after you die, this gift will no longer be valid. This is because the insurance policy has been terminated and no longer exists.
However, you could include an alternative clause when creating your will to handle a situation like this. If you want to ensure that you have completely provided for every possible situation that may happen after you expire in relation to your insurance policies, consider getting professional legal advice from a will lawyer to help with your will.
Urgent times will call for quick decisions, however, you must always keep in mind the pros and cons of both selling and surrendering your insurance policy and the benefits of your current policy, before making a decision to go with either.
Article contributed by CapitaSafe, the leading independent resale insurance provider specialising in the acquisition of life and endowment insurance policies in Singapore.
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