YOU ASK:

Can you surrender a policy without losing too much of your premium payments?

WE ANSWER:

It depends on how long the policy has already been in existence and how long it has been accumulating cash value.

It may take some time for the cash value to grow into a considerable amount. This is because the premiums you pay are apportioned for paying for the insurance coverage while the rest goes for investment purposes (this is where the cash value comes in). For the first few years of the policy, you will discover that since the cash value is so small, you will be losing some of the money you paid in premiums when you surrender the policy.

You may have to wait a minimum of five to ten years before you can really say that the cash value exceeds the premiums paid.

You should also check if your policy has a surrender period provision attached to it. This provision stipulates that you have to wait for a specified length of time before you are able to get the full cash value amount in the event that you surrender the policy. If you surrender the policy before the surrender period, then even if you have earned a substantial cash value amount, you will not get that in full.

Thus, if you don't want to lose too much when you surrender the policy, you should wait for it to accumulate a big cash value and wait for the surrender period to pass (which is usually set at three years).

Another option you can look into would be a life settlement, where you "sell" the policy to a third party who will eventually be the ones who will receive the death benefit when you die. Life settlements usually pay amounts higher than the cash surrender value. What will happen is that you will assign ownership of the policy to the third party.

A word to the wise. You should consider that when you terminate your policy, you will not be able to get the same coverage for the same amount of premiums. And, if your health condition deteriorates, you may not be able to get coverage anymore.

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