Surrendering Your Insurance Policy: What You Need to Know
In challenging economic times, many individuals face financial strain and may look to their existing assets — including insurance investments — to meet urgent needs. One potential option is to access funds through an early withdrawal or policy surrender.
But before making such a decision, it’s important to understand what this entails and the potential long-term consequences.
To surrender an insurance policy means to voluntarily terminate your contract before it reaches its maturity date. By doing so, you may access the accumulated cash value of the policy — but this comes with several implications.
To surrender an insurance policy means to voluntarily terminate your contract before it reaches its maturity date. By doing so, you may access the accumulated cash value of the policy — but this comes with several implications.
Why Do People Surrender Their Policies?
People may consider surrendering their policies to:
- Access immediate funds for living expenses or debt repayment
- Cope with a financial emergency
- Reallocate funds to another investment
While these reasons may seem valid in the short term, surrendering your policy could compromise your long-term financial goals and your family’s financial security.
Key Purposes of Insurance Investments
Before surrendering your policy, it’s important to remember why you took it out in the first place. Common goals include:
- Long-term savings for retirement – To protect against the financial impact of a longer life (longevity risk)
- Financial protection for your family – Against the consequences of early death, disability, or serious illness
Things to Consider Before Surrendering Your Policy
Premature withdrawal or surrender of your policy may result in:
- Surrender charges: These are fees deducted from your payout if the policy is ended early.
- Loss of insurance coverage: If you choose to take out a similar policy later, you may not qualify due to age or health status.
- Forfeiture of guaranteed interest or returns: Most policies offer guaranteed benefits if held to maturity.
- Loss of accumulated savings: Surrendering interrupts the growth of your savings and creates opportunity costs.
Before making a final decision, speak to your Financial Advisor or contact NAMFISA for more information about the risks involved in cancelling or cashing out your insurance investment.