Life is unpredictable and the situation took a turn for the worse. It is apparent that you are left with no other option besides surrendering or terminating your insurance policy. So by this point, all that matters to you is how much cold hard cash you can get out of it.
But is surrendering or terminating your insurance policy the only way to get the highest cash value? It apparently may not be so, read on to find out more.
Note: We are STRONGLY AGAINST the surrendering/ selling of insurance policies unless no other options are available.
Before you consider surrendering or selling your policy, please read this article on the options that may still be available to you.
When you surrender your insurance policy
When you surrender your Life insurance policy, one of the two below will happen:
- Your policy is a Participating policy – In this case, your final cash value will be calculated based on the number of years that have passed since you took up the policy. This is known as a surrender value and all individual policy has its own surrender value. This surrender value is made up of a Guaranteed and Non-Guaranteed cash value.
- Your policy is a Non-Participating policy – In this case, there is no cash value. If the premium is already paid for the remainder of the year, there is no point surrendering or terminating the policy. Just let it go on until premium payment is required. By not paying the additional premiums, the policy will lapse and be invalid on its own when the premium is due again.
By cashing out on your policy, you lose all future financial benefit or insurance coverage that the policy would have provided. Once it is surrendered, it is as good as you not having anything to do with that particular policy anymore.
Note: The surrender or termination of a life insurance policy before its maturity will result in a financial loss.
When you sell your insurance policy
Besides surrendering your policy, you may also sell your insurance policy to a willingly third party that takes over all future premium payment. The buyer of your insurance policy will gain all future rights and benefits from the insurance policy. In return, you will be offered a financial compensation higher than the surrender value of the insurance policy. You will not have any say or relationship with regards to that particular policy anymore.
You may be better off financially from selling rather than surrendering your policy, for the sale to make senses. This act of you selling your insurance policy is also known as an absolute assignment.
What is an absolute assignment?
An absolute assignment is a legal transfer of all rights and benefits of a policy from the current policy owner (Assignor) to the new policy owner (Assignee). So instead of surrendering the policy for the cash value, you can transfer it to someone else to take over your insurance policy.
Why would you do an absolute assignment?
Basically, the potential new policy owner (Assignee) would have to make a better offer than what you would receive if you (Assignee) surrender outright to the insurance company. From a financial point of view, you get a higher amount of cash than if you surrender it to the insurance company.
Here is how it will pan out:
Assignor (You) – Recieve a higher cash value than what the insurance company pays you when the insurance policy is surrendered to them.
Assignee – Can choose to continue the policy until maturity to receive a higher financial payout or resell the policy to another willing buyer. In the event the insured on the insurance policy pass away, the assignee is able to claim the death benefit.
Insurance company – Already benefitted when you took up the policy. By the time a policy is surrendered, distribution costs would have been paid out. The surrender value is a mere fraction of premiums paid, and the liability disappears from insurers’ books.
What kind of insurance policies can be sold?
Commonly accepted life insurance policies include:
- Regular pay Endowment Policy
- Limited pay Endowment Policy
- Regular pay Whole Life Policy
- Limited Pay Whole Life Policy
- Insurance policies with surrender values
Even life insurance policy with a policy loan taken or premium payment has already lapsed, may still be sold.
What should I take note of?
When a policy is surrendered back to the insurance company, the cheque may take 7 to 10 days after the paperwork is processed. For a sale of a life insurance policy, the entity will issue a cheque or cash directly upon completion of the absolute assignment. If you are not sure if the procedure is correctly done, do not proceed by yourself. Let us help you to ensure everything is right with the process.
The trading of an insurance policy is currently not regulated in Singapore or by MAS. Hence, it is important to look for an entity with strong financial status. This is especially important if the payment to you is by cheque.
Go to: Notice on Traded Life Policies, MoneySense by MAS (Open in New Window)
You may also be under-insured due to the loss of the policy. Consider short-term fixed such as a term insurance to cover gaping holes in your health and protection coverages. As there as no cash values and financial returns, the premiums are much lower and may tide you over while you rebuilt your finances.
Related: View Term Insurance Plans here
Read about: Term insurance: How does it work?
I need to sell my insurance policy, who should I talk to?
InterestGuru.sg works with the various insurance traders to secure the best deal for you. You get the same payout as you approach an insurance trader directly. InterestGuru.sg will earn a remuneration which comes from the insurance traders, instead of a fee from you selling your insurance policy.
Before coming to this decision, ensure that you have exhausted all other financial options. Regardless of the fact that you can get a higher payout compared to the surrendering of the insurance policy, the end result is still a financial loss.
We understand that time is of the essence here and aim to attend all enquiries by the same working day or within 24 hours.
Let InterestGuru.sg secure the best for you, while you worry the pressing matters on hand.
Need a review on your financial plans?
Contact us and our partnered Independent Advisers are available to talk to you.