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Alternatives to Lapsing or Surrendering Life Insurance

Lapsing or Surrendering Life Insurance

Life insurance is an essential financial tool that provides security and peace of mind for you and your loved ones. However, circumstances can change, and you might find yourself considering lapsing or surrendering your life insurance policy. Before making such a decision, it's crucial to explore alternative options that could potentially better suit your needs.

In this post, we will discuss potential alternatives to lapsing or surrendering your life insurance policy.

Lapsing or surrendering a life insurance policy should not be the default response to changing circumstances. Before taking such a step, carefully evaluate the various alternatives available to you. Consult with a qualified life insurance professional to better understand how each option aligns with your financial goals and needs. By exploring these alternatives, you can make an informed decision that best suits your current situation while preserving the protection and benefits that life insurance provides.

Policy Loan

Many permanent life insurance policies, such as whole life or universal life, allow policyholders to take out a loan against the policy's cash value. This option enables you to access funds while keeping the policy intact. However, it's essential to understand the interest rates and potential impacts on the death benefit or policy funding before taking a policy loan.

Partial Surrender

Instead of surrendering the entire policy, consider a partial surrender. This may be an option depending on the contractual terms of your life insurance policy. If this is available, it may allow you to withdraw a portion of the cash value inside the policy while maintaining some death benefit coverage.

Reduced Coverage

If you're struggling with premium payments, discuss and evaluate the possibility of reducing the policy death benefit coverage. Lowering the death benefit can potentially result in more affordable premiums while allowing you to keep the policy inforce.

Policy 1035 Exchange

In certain situations, you may be able to exchange your current life insurance policy for another one that better aligns with your needs. A 1035 exchange, for instance, allows you to transfer funds from one policy to another, potentially without incurring taxes.

Premium Financing

If you have a high-value life insurance policy, premium financing might be an option. This involves borrowing money to cover premium payments, which can be especially beneficial for estate planning purposes. As is the case with any loan, it is important to evaluate the cost of the loan under a variety of scenarios like increasing loan interest rates, non-renewal of the loan in the future, or lack of liquidity to properly service the outstanding loan.

Convert to Paid-Up Policy

Depending on the type of permanent life insurance policy you own, you might be able to

convert it to a paid-up policy. This means you stop making premium payments, and the policy remains in force but with a reduced death benefit.

Sell Your Policy (Life Settlement)

For policy owners with lower life expectancies and whose insurance needs have changed, a life settlement could be an attractive option. A life settlement allows the policy owner to sell the life insurance policy to a third party for a lump sum cash payment, and they become the new policyholder, responsible for future premium payments.

Accelerated Death Benefit

Some life insurance policies offer an accelerated death benefit rider. This allows you to access a portion of the death benefit early if you are diagnosed with a terminal illness or meet certain qualifying criteria.

Gift Your Policy

If you no longer need the life insurance policy and want to support a charitable cause, consider gifting the policy to a nonprofit organization. This allows you to make a substantial donation while potentially receiving tax benefits.


This material and the opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual or entity. To determine what is appropriate for you, please contact our team. Information obtained from third-party sources are believed to be reliable but not guaranteed.

Loans and partial withdrawals will decrease the death benefit and cash value and may be subject to policy limitations and income tax.

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