Life circumstances change. A job ends, expenses increase, health declines, or retirement shifts your financial priorities. Suddenly, continuing to pay life insurance premiums may not be possible. The good news is that you are not stuck with a policy you cannot afford and you do not have to walk away with nothing. There are ways to preserve value, shift payment responsibility, or even access cash, depending on the type of policy you have and your current needs.
Here are several options to consider, along with real world situations where each approach has helped policyholders regain financial control.
Surrender the Policy for Its Cash Value
If you have a permanent life insurance policy, such as whole life or universal life, it may have built up cash value over the years. You can surrender the policy and take that value out. This is common among retirees who find they no longer need the full amount of life insurance and would benefit more from liquidity.
For example, a seventy two year old man who had paid into his whole life policy for over twenty years chose to surrender it when he moved into assisted living. The payout helped him cover his care for the next six months. He had originally bought the policy to protect a young family, but those needs had changed. If you need a Michigan life insurance denial attorney call us.
Surrendering does eliminate the death benefit, and the cash value may be taxable depending on how much you paid in. But if the coverage is no longer essential, this can provide a financial cushion during a difficult time.
Let the Policy Lapse
Sometimes the simplest path is to stop paying and allow the coverage to end. This may make sense if the death benefit is no longer needed, or if the policyholder is facing other urgent financial pressures.
We assisted a woman in her early sixties who was recently widowed and financially independent. She no longer had dependents and decided that continuing her term life policy served no real purpose. Letting the policy lapse allowed her to redirect the funds toward her living expenses without losing any needed protection.
Of course, this option should only be considered when the policyholder and family agree that the benefit is no longer necessary. Once a policy lapses, it cannot be reinstated unless specific reinstatement rights are written into the contract and deadlines are met.
Have a Beneficiary Take Over the Payments
If the policy still has value to your loved ones, another option is to have your beneficiary continue paying the premiums. This often makes sense when the insured cannot afford the policy but the future payout would meaningfully help the family.
A recent case involved a father whose adult daughter had been named as the beneficiary. After he lost his job, she chose to take over the premium payments to keep the coverage active. Two years later, when he passed unexpectedly, the benefit allowed her to pay off student loans and provide for her own children.
Not all beneficiaries will be in a position to do this, but it is worth discussing before letting a policy go. It can be a practical way to share the financial burden and maintain important coverage.
Sell the Policy on the Secondary Market
For older adults with permanent life insurance, a life settlement may offer more value than surrendering to the insurer. In a life settlement, the policy is sold to a third party investor who becomes the new owner, pays the future premiums, and collects the death benefit later.
One client in his late seventies had a policy with a five hundred thousand dollar death benefit. Rather than surrender it for its thirty thousand dollar cash value, he sold it through a life settlement company for over eighty thousand. The money allowed him to move closer to family and pay for long delayed home repairs.
Life settlements are not for everyone. They typically require the policyholder to be over age sixty and the policy to have a certain face value. Once the sale is made, the original owner gives up all future control and the family no longer receives the benefit. But in the right situation, it can unlock significantly more value than simply letting a policy lapse or cashing it out early.
Reduce the Death Benefit or Convert to a Paid Up Policy
Some insurance companies allow policyholders to scale back their coverage in exchange for eliminating future premiums. This is known as a reduced paid up policy. It is most commonly available on whole life policies that have been active for many years.
In one example, a couple nearing retirement had built up substantial cash value in their permanent policy. They converted it into a smaller paid up policy with no additional premiums required. Although the original benefit was reduced, they retained lifelong coverage and avoided the financial strain of monthly payments.
This can be a good compromise if you no longer need the full amount of coverage but still want to leave something behind. It is also helpful for policyholders who are no longer insurable due to age or health and cannot qualify for new coverage elsewhere.