When you buy life insurance online, remember that in permanent insurance policies, the amount available if policy owners “cash in” their policies is called the “cash surrender value.” Thus, if policy owners choose to stop paying premiums, one of their options is to request an immediate payment of cash equal to the cash value. A table of cash surrender values is included in every permanent life insurance policy. The amount of money a policy owner receives when surrendering a policy is the cash surrender value, less any outstanding policy indebtedness.
Companies usually are required to make cash surrender values available for cheap life insurance policies after the first three policy years, and for industrial insurance, after five years.
Laws in most states permit companies to postpone payment of cash surrender values for up to six months after policy owners request payment. The “delayed premium” provision is designed as a protective measure for companies in case an unexpected economic crisis arises, but such delays are rarely invoked. Buy life insurance online!
Even though cash values are readily available to policy owners who wish to terminate their cheap life insurance policies, surrendering a policy for cash is a serious action to take. When canceling a policy, the policy owner might be giving up protection that can never be replaced, particularly should the individual become uninsurable.
When policy owners indicate they need money and want to cash in their policies, agents should point out possible alternatives. For example, policy owners might be better off taking out policy loans and keeping their life insurance in force. Or they might use their policies as collateral to obtain a bank loan to meet a pressing need. Or perhaps they would be better off electing one of the remaining two nonforfeiture options.
Another choice is to take a paid-up policy for a reduced amount of life insurance. By doing this, the policy owner does not pay any more premiums, but still has some amount of life insurance. This often is an excellent choice after the policy owner begins retirement and has fewer family responsibilities. By electing to take a paid-up policy, the proceeds still can be payable to a family beneficiary or to the policy owner’s estate to help meet final expenses.
Under this option, the paid-up policy is the same kind as the original policy, but for a lesser amount of protection. For example, if the original policy is a participating whole life policy, the paid-up policy also will be a participating whole life contract. The paid-up policy is computed as a single premium policy at the attained-age rate. Moreover, any term insurance rider and disability or accidental death benefits arc excluded when the amount of paid-up life insurance is calculated.
Once the paid-up policy has been issued, the face value remains the same for the life of the policy, which also builds cash values. Buy life insurance online!
In Figure 8-3, note that the amount of paid-up insurance is greater than the amount of cash value at the time the nonforfeiture option became effective. Although the premium payments stopped at Lyman’s age 50, the cash value in the paid-up cheap life insurance policies continues to grow.
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