Don’t Surrender That Life Insurance Policy or Let It Lapse!

{4 minutes to read}  Today, I want to talk about a situation that came up with one of our clients which caused me to want to share something important about life insurance. No one should ever surrender or let their life insurance policy lapse before doing appropriate due diligence and review. Even if it’s a term policy that you no longer need, it might have value in the secondary market. 

Term insurance doesn’t have cash value but there are companies, whether they are hedge funds or private equity, that will be willing to buy your life insurance policy. This concept is called a Life Settlement, and when it first came out, a lot of people were skeptical about it.  

A term policy is temporary and it expires after the term is over. So, you could buy a 10-year term policy at the age of 50. If you died at 55, you’d get a death benefit. But if you let the policy lapse without converting it to a permanent policy, and died at 68, you get nothing because the policy terminated at the end of the term. 

I have a 55-year-old woman that bought a 20-year term policy and just turned 70. There are five years left that she can convert to a permanent policy. But at age 70, she decided “I don’t need it. I don’t want it. I don’t want to pay the premiums.” 

Rather than just ignoring the premium notices, contacting somebody like myself who understands the life settlement market and has the know-how to access the right information to see if a company would write her a check for that policy is a better option. A life settlement company might look at the policy and say, “We can convert the policy, keep it in our books, and when this individual dies, we’ll get X dollars.” So, if you have a $5 million term policy that is due to lapse, that policy might be purchased for $100,000, $200,000, $500,000 or $1 million by one of these life settlement companies. This will depend largely on your health and age.

Every person who owns a life insurance policy needs to be aware of this. I have another client that has a universal life policy worth a couple of million dollars but his premium is going up because he didn’t pay into it enough. He was just going to let it go and surrender it for its cash value — about $130,000. The reality is that there’s a company out there that’s willing to buy it for about double that amount.

If you are not aware of this option, you could be cheating yourself and your loved ones out of a significant amount of money. Like any other asset, you don’t have to just sell it back to the insurance company for its cash value. When you buy a house, you don’t have to sell it back to the bank. You could sell it on the open market like any other piece of property. Like the house, life insurance is an asset that can be sold. Also, the companies buying these contracts are not unscrupulous criminals. They are financial companies who understand how life insurance works to create a guaranteed death benefit and a non-correlated asset class, that makes these products attractive as an investment for them.

So consider yourself informed: Don’t ever surrender a policy for its cash value or let a life insurance policy lapse without reviewing your options. It could save you a lot of money. If you’d like us to look at your policy to see what you could get for it in the life settlement market, let us know.

Get the information. You’ll be glad you did.

Registered Representative offering Securities through American Portfolios Financial Services, Inc. (APFS) Member FINRA/SIPC. Investment Advisory Services are offered through G&G Planning Concepts, Inc. which is not affiliated with APFS.  Strategic Wealth Advisors Network and Gassman Financial Group are not affiliated with APFS.

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