Cashing in Your Life Insurance Policy
Everyone knows that you may surrender a life insurance policy at any time for the "cash surrender value". However, a better option may be a "life settlement" which pays more than the cash surrender value.
In a life settlement, you sell the policy to a third party instead of cashing it in. Here, the payment will be something greater than the cash surrender value but less than the death benefit. The buyer assumes the policy, pays the premiums and receives the death benefit.
There are many reasons why people want to cash in their policy. Paying the premiums have become a burden, they no longer need or want the death benefit or the money is needed for some other purpose.
There are some tax advantages to cashing in as well. Any money paid into the policy as premiums comes back to the seller tax-free (since the money used to pay the premiums was already taxed).
The purchaser of the policy will determine the amount they are willing to pay for the policy based on the amount, if any, of the cash surrender value and the age and health of the seller. Since there are numerous companies out there you may "shop around" for the best offering. Some companies offer a "life settlement calculator" where you may go online, plug in all your information, and receive a quote within twenty-four hours.
You may hear of the term "viatical settlement" when exploring the issue of whether or not to cash in your policy. Viatical settlements generally pay more than life settlements but are limited to terminally ill policy holders with less than two years of life expectancy as determined by a medical professional.
Finally, if you want to do the best you can with your policy, but do not have the time or inclination to shop around, there are "life settlement brokers" who, for a fee, will do the shopping for you.