Cash Value vs Surrender Fee

[Frank Williams]

I have a 250K UL $2K Cash Value and $7K Surrender Fee. I can not afford to pay the premium any further due to job loss during COVID. I plan on just letting the policy lapse.

Can I assume I will just lose the $2K cash value, and nothing else on the surrender fees?

Please advise.

Frank.

 

[DHK]

If the policy is newer (under 10-15 years old) the difference is the difference between the account value and the accessible surrender value. These amounts are different until after 10-15 years has passed... and then they'll be the same amount.

So, based on your numbers it appears you have a $9k account value with a $7k surrender charge - if you cancel - but $2k you can access now.

If you choose to cancel the policy, you'll get the $2k and forfeit the remaining $7k and the policy.

Often with a UL policy though, you can choose to not make payments and let the remaining $2k pay the costs of insurance until it's down to $0.

Ask the company for an "in-force" illustration for how long the policy will last if you don't make any more payments.

If anything it can buy you some time and keep the coverage for a while longer.

 

[rousemark]

If the policy is newer (under 10-15 years old) the difference is the difference between the account value and the accessible surrender value. These amounts are different until after 10-15 years has passed... and then they'll be the same amount.

So, based on your numbers it appears you have a $9k account value with a $7k surrender charge - if you cancel - but $2k you can access now.

If you choose to cancel the policy, you'll get the $2k and forfeit the remaining $7k and the policy.

Often with a UL policy though, you can choose to not make payments and let the remaining $2k pay the costs of insurance until it's down to $0.

Ask the company for an "in-force" illustration for how long the policy will last if you don't make any more payments.

If anything it can buy you some time and keep the coverage for a while longer.

Have seen people quit paying the premiums and they ended up getting more cash becasue the surrender charge ran out.

 

[Allen Trent]

You could also drop the face amount to the lowest they allow, maybe 25k or 50k. This will drop the internal cost of insurance by 70-80%. This could make the policy last longer to help the surrender charge wind down over time. Ask the company to run an inforce illustration with 0 premium & the face amount lowered to the lowest they allow

 

[DHK]

Maybe... but if they're still in the surrender charge period... would that even be worth it?

 

[Tahoe Ray]

You could also drop the face amount to the lowest they allow, maybe 25k or 50k. This will drop the internal cost of insurance by 70-80%. This could make the policy last longer to help the surrender charge wind down over time. Ask the company to run an inforce illustration with 0 premium & the face amount lowered to the lowest they allow

His agent is going to love that solution while the policy is still in surrender...lol.

 

[Allen Trent]

Maybe... but if they're still in the surrender charge period... would that even be worth it?

Some ULs don't charge a surrender charge for a face reduction. So, if there is 9k making interest & currently 250k charging COI, lowering face to COI won't impact the interest being made on the 9k, but will drop the internal COI by 80%, thus extending the time until it lapses or possibly outlasting surrender charge to allow a larger amount to be cashed out in the future compared to what could be cashed out today. Have seen it done many times on ULs.

 

[Allen Trent]

His agent is going to love that solution while the policy is still in surrender...lol.

Depends. Not all ULs back out pro rata commission for entire 10 or 15 year surr charge period. Those that do might for the 1st few years

 

[Tahoe Ray]

Depends. Not all ULs back out pro rata commission for entire 10 or 15 year surr charge period. Those that do might for the 1st few years

Yeah, I was just messin' with you more than anything.

 

[scagnt83]

Some ULs don't charge a surrender charge for a face reduction. So, if there is 9k making interest & currently 250k charging COI, lowering face to COI won't impact the interest being made on the 9k, but will drop the internal COI by 80%, thus extending the time until it lapses or possibly outlasting surrender charge to allow a larger amount to be cashed out in the future compared to what could be cashed out today. Have seen it done many times on ULs.

I have never seen a UL that waives surrender charges on a face reduction, while still in the surrender period. You have?

I have only seen it waived for internal transfers to new products. And even then most will not.

If the policy is out of surrender, then you can reduce without issue. But within the surrender period, you are looking at a face reduction in every policy Ive ever worked with in that situation.