Why You Should Sell — Not Surrender — Your Life Insurance Policy

Surrendering your life insurance policy is one way you can liquidate, but selling a policy you don’t need may be a better strategy. Selling has several advantages to surrendering it, including higher proceeds and greater flexibility. Surrendering the policy is faster but selling it usually brings you more money.

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  • Written By
    Christian Simmons, CEPF

    Christian Simmons, CEPF

    Financial Writer, Certified Educator in Personal Finance

    Christian Simmons is a financial writer who has worked professionally as a journalist since 2016. As an active member of the Association for Financial Counseling & Planning (AFCPE), Christian prides himself on his ability to break down complex financial topics in ways that Annuity.org readers can easily understand.

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  • Edited By
    Michael Santiago
    Headshot of Michael Santiago, senior editor for Annuity.org

    Michael Santiago

    Senior Financial Editor

    Michael Santiago is a skilled writer and editor with over a decade of experience in various industries. As a senior financial editor, he collaborates with a team of experts to develop compelling and accurate content.

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  • Financially Reviewed By Eric Estevez
  • Updated: October 31, 2023
  • 5 min read time
  • This page features 6 Cited Research Articles

Key Takeaways

  • Surrendering your life insurance policy cancels your coverage. In return, your insurance company will pay you the surrender value of your policy, or its cash value minus any applicable fees.
  • You can also sell your unneeded life insurance policy on the secondary market.
  • Surrendering your policy is usually quicker than selling it, but selling your policy will get you more money overall.

What Does Surrendering a Life Insurance Policy Mean?

Surrendering a life insurance policy is how you cancel the policy. After terminating your coverage, your insurance company will provide you with the surrender cash value of your policy.

What Happens to Your Policy?

When you surrender your life insurance policy, your insurer immediately ends your coverage and owes you the built-up surrender value. You can calculate the surrender value by subtracting any surrender fees from the amount of money you paid toward your policy during the time you held it.

If you surrender a policy, you give up the right for your beneficiaries to collect the death benefit. Losing this potentially lucrative benefit is why you should talk to a qualified financial advisor before surrendering your policy. Your advisor will assist you in evaluating whether the trade-off of receiving cash now instead of providing funds to others later is a sensible decision, including exploring life insurance settlements and any alternative options that may be more advantageous for you.

What Are the Financial Implications?

The most significant financial implication of surrendering your life insurance policy is the loss of the death benefits. Selling means your family members won’t receive any money from your policy when you die, potentially affecting their long-term financial stability. Another implication is that you can have trouble enrolling in a new policy after you surrender one.

Surrendering your policy usually means you incur fees. These fees get subtracted from the cash value of your policy and reduce the amount of money you receive. The bottom-line amount is the surrender value. Depending on your financial situation, you may also owe taxes on the money you receive.

Can You Sell Life Insurance Policies?

Surrendering your policy isn’t the only way to turn your life insurance policy into cash. You have an option of selling your policy on the secondary life insurance market. Doing this is called a life insurance settlement.

Selling your policy transfers ownership of it to the buyer. The buyer takes over the responsibility of paying the premiums and, in return, receives the death benefit when you die.

Selling your life insurance policy is a smart choice for people who can’t afford to pay their premiums or need to raise money quickly. However, it’s always best to speak with a life settlement specialist or a financial advisor before making your final decision.

H3: Who Buys It?

There are three typical types of people who buy life insurance policies. They are:

  • Private investors. Some people invest their money in life insurance policies in the secondary market.
  • Life settlement companies. These investment firms specialize in buying life insurance policies from private sellers. Some also broker deals for private buyers.
  • Other financial institutions like banks or credit unions. These institutions sometimes invest in life insurance policies as a diversification option.

The amount that buyers will pay to own life insurance depends on several elements, including:

  • Your age and health. As you age and your health condition becomes more fragile, buyers are willing to offer higher payments for your policy.
  • How high your premiums are. Policies with lower premiums are more attractive to buyers because buyers will take over payment of them once the sale closes.
  • How large your death benefit is. Policies with modest benefits aren’t worth as much as policies that carry a bigger payout.

You’re allowed to negotiate with potential buyers before accepting any offer. If you think a buyer might pay a little more than what they’ve offered, approaching them with a counteroffer may win you a higher final sale price.

Surrendering vs. Selling Your Life Insurance Policy

Selling payments from your life insurance policy is sometimes the better choice compared to surrendering the policy. Let’s look at a few pros and cons associated with each option below.

Surrendering vs. Selling Life Insurance

  Pros Cons
Surrendering Life Insurance You’ll get rid of your policy quickly
You’ll recoup some of your investment
You’ll owe surrender fees
There is no room for negotiation
Selling Life Insurance You’ll get more money for your policy
You can choose from several offers and negotiate with potential buyers
It may take some time to find a suitable buyer
You’ll need a lawyer or insurance broker’s help

Why Selling Your Life Insurance Policy Makes More Sense

There are a few reasons you should sell your life insurance policy instead of surrendering it. Among them:

  • You no longer need the coverage. If your beneficiaries don’t need the death benefits, selling your policy is a sound way to dispose of a life insurance policy without losing money to surrender fees.
  • You want to liquidate your investment. You’ll get much more money from selling your policy than you will from surrendering it.
  • Your premium payments are too high. If you sell your policy, you won’t have to pay high premiums anymore.
  • You’re facing financial hardship. Selling your life insurance policy could net you a sizable sum of money that you can use for any purpose.

If you’re unsure that selling your insurance policy is the best choice, talk to a financial advisor or life settlement agent. They’ll analyze your situation and help you decide on the best course of action.

Read More: Life Settlement FAQs

Please seek the advice of a qualified professional before making financial decisions.
Last Modified: October 31, 2023