Ending Your Life Insurance
If you have a life insurance policy you don't want, your may simply stop paying premiums and to let your policy lapse. While that is certainly one option, there are a number of other solutions open to you as a whole life insurance contract owner.
Whole life insurance is meant to provide life insurance coverage to age 100. Whole life insurance may no longer be needed because:
- Debts get paid off;
- Premiums are too high to maintain; or
- You build savings in other areas, from a home sale or investment gains
If you want to cancel your life insurance, your options may include:
- Using the cash value in the contract to purchase reduced paid-up insurance. Paid-up life insurance is a policy in which you have enough cash value, or you've already made enough premium payments, to cover the cost of insurance for the rest of your life.
Paid-up insurance can be purchased by either working with the insurance company that issued your original life insurance policy, or working with another life insurer and using a 1035 exchange to get a different policy.
- Set up automatic premium loans which allow premiums to be paid from cash value in the policy. But if you surrender the contract, any loans you've taken out against cash value may be taxed as ordinary income
- Using the cash value to pay for a long-term care policy or a combination of long-term care and life insurance.
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Surrender your contract for the cash value, that choice is permanent and you may not be get more life insurance policy if you become uninsurable later on.
- Using accelerated death benefits
(assuming you have this rider) allow you to access money from the death benefit if you are diagnosed with a terminal illness. That money would be deducted from the payout beneficiaries receive after you die.
- Selling your life policy aka life settlement to an investor in exchange for a sum of money, which often exceeds what would have been paid to you if your life insurance contract was allowed to lapse or was surrendered for cash value. Only take the life settlement option if no longer need life insurance.
Before liquidating, selling or borrowing against a life insurance policy, calculate future tuition costs, mortgage balance, childcare, etc. There may be tax bills for changing or ending a whole life insurance policy.
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