Sunday, 10 July 2016

Consider These Options Before Surrendering Life Insurance Policy


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Are you going to surrender your life insurance policy? Do you know that you have some options to fulfill your financial needs without surrendering your policy? If you don’t know what are other options available to you then you are at right place. In this post, we’ll show you some options that you can consider before withdrawing a policy. Practically, policy surrender is not a good option because it is subject to penalties such as, surrender charges; therefore, one should seek other options before doing so. Probably, you may aware that on terminating a life insurance contract you only receive saving portion of your policy along with accrued bonuses.
Policy Surrender Alternatives
Insurance companies invest some percentage of your premiums in money market to give you promised benefits and they design your policy in such a way that at maturity you will get all the benefits mentioned in your policy documents. But if you surrender your policy in mid-way (before maturity) then your insurer may not be liable to pay you sum assured. Therefore, it’s advised to keep your policy in force and seek other options.
Do you know by terminating your policy, you are losing an opportunity to earn long-term returns on your saving portfolio and your policy will cease which means, your insurance company will no longer cover you.
We understand that sometimes the unexpected happens and we need to take such difficult decisions (policy surrender). Therefore, purposely we are educating you to look at other options before taking such hard decisions.

Options to seek before insurance policy surrender

Partial Withdrawal

Life insurance policies with saving components come with partial withdrawal options. With partial withdrawal facility, policyholders can withdraw a portion of their cash values accumulated in saving portfolios say 25% or 30% (actual figure depends on your policy).

Loan

You may not be aware that you can take loan on your life insurance policy; therefore, we suggest you consider this option to fulfill your money requirements. Though taking loan on a life insurance policy is not advisable; however, you may opt this option when you require emergency funds. Usually, amount of loan that your can take depends on age of your policy.

Make Policy Paid-up

Above two solutions could be used to arrange funds in emergencies but what if someone reluctant to continue his/her insurance contract. Here is a solution, if you have paid the premiums for at least one year then you can change your policy into paid up policy. In paid-up policy, policyholder stops paying premiums after expiration of lock-in period but does not surrender his/her policy and in that case, insurer converts his/her policy into paid-up policy.
At the time of maturity, policyholder receives sum assured along with cash value and bonuses (if any) as per premiums paid by policyholder.
Note: You may need to pay the premiums until the lock-in period expires if you want to convert your policy into paid-up.
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