What is a Lapsed Policy?
A lapsed life insurance policy is a policy that no longer has active coverage. This is usually due to non-payment of the monthly premiums. When you stop or are unable to continue to pay for life insurance premiums, your policy is considered “lapsed”. The coverage will no longer be in active status; however, it may not be completely void if you are able to make up the premiums within an allotted grace period by working with your insurance company.
- When coverage lapses, it’s typically due to the policyholder’s inability to pay their premiums on time.
- Most insurance companies keep the policy active for 30 days while waiting for payment before terminating the policy.
- If terminated, there is no longer a death benefit.
- Depending on the type of life insurance policy, you may not have the ability to surrender. Therefore you lose all monies paid into the policy over the years. This is especially important for those with term life policies.
Policy holders miss payments for a variety of reasons:
- Job loss
- Miscommunication of payment due dates.
- Financial hardship
- Change in health or medical status, resulting in reduction or loss of income
Letting your coverage lapse doesn’t always mean that your policy has become worthless. Some types of policies hold cash value and, may be used to cover unpaid premiums, such as:
- Universal life insurance
- Whole life insurance
- Indexed universal life
When a lapse occurs, you can pay the insurance company to prevent loss of coverage before it’s terminated. It is also possible to use the accrued cash value built up in your policy if you have a whole life or universal life coverage. In certain cases, some insurance companies offer a grace period in which you can pay up the monthly premiums in arrears.
Alternatively, you could let the policy lapse and purchase new coverage. You will have to re-qualify for and, be eligible for a new policy. When you choose this option, the following will occur:
- The insurance company will reevaluate your health.
- Your age will be taken into consideration.
- Since you have aged since taking out your initial policy, the premiums may be higher.
What is a Surrendered Policy?
When you “surrender” a life insurance policy you opt out or decide to cancel your life insurance policy. Some types of policies allow you redeem a certain fraction of the value paid into the policy minus fees.
- While lapses in coverage are typically not intentional, choosing to surrender a life insurance policy is a voluntary decision that a policyholder makes.
Although you are entitled to a specific financial amount which has built up over the years, surrendering a life insurance policy is a less payout than selling the life insurance policy for a life settlement to a licensed third-party buyer. MRE Finance can help you make this important decision.
What Is Surrendering a Life Insurance Policy?
A permanent or universal life insurance policy may be surrendered for the accumulated cash surrender value of the policy. Premiums will be paid from the cash value, if any, until exhausted, at which time the policy coverage will terminate.
By surrendering your policy, you agree to the cash surrender value based on your policy, minus fees and you forgo the death benefit.
Whole and universal policies accrue cash value, making them the most likely policy’s for the opportunity to surrender.
Surrendering a policy is preferable to lapsing, as you have access to some the cash value from your policy.
There are fees that apply when you surrender your policy. According to Forbes.com, “Over time, surrender fees tend to decrease. Ideally, you would wait until the fee in minimal or nonexistent. Plus, the longer you’ve held the policy, the larger the cash value portion will likely be.”
The surrender of your policy is dependent on several factors:
- If the policy is in good standing, you can surrender it to the insurance company.
- In exchange, you will receive a modest payment from your insurance company based on the cash value from the premiums paid into the policy, minus fees.
- The amount you receive will depend on the policy type, cash value, premiums paid, death benefit amount and your age at the time you surrender.
- The surrender value is much less than the face value of the policy.
Two common reasons to surrender a life insurance policy:
- Unable to make the premium payments for the policy.
- Have medical expenses to pay.
- You have been diagnosed with a chronical illness or become disabled.
Another option is to sell your life policy for a life or viatical settlement. Find out the estimate value of your life insurance policy in minutes. Click the button below.
Can You a Sell Lapsed Life Insurance Policy?
It is possible to sell a lapsed policy IF:
- The policy has not been fully terminated by the insurance company.
- If you make up the missed payments and restore coverage.
- Your lapsed policy may qualify you for a life or viatical settlement if, arrears have been paid or you’re within your grace period.
Can You Sell Surrendered Life Insurance Policies?
The answer is no.
Once a life insurance policy has been surrendered to the insurance carrier, it is deemed canceled. The life insurance policy is NO LONGER ELIGIBLE to sell for a life or viatical settlement.
Before you surrender your coverage, try the MRE Finance FREE Life Settlement Calculator and find the value of how much your policy is worth for a life settlement.
MRE Finance Are Life Settlement Experts
There are many reasons to sell your policy for a life settlement. The life insurance policy could be one of the most valuable assets you own.
- You no longer pay insurance premiums.
- Life settlements have a higher cash payout than surrendering the policy.
- By lapsing a policy you lose all the money you paid in premiums over the years.
If you want to know more about a lapsed policy, surrendering a policy and, the benefits of a life settlement. Call MRE Finance today! 1-800-521-0770.
Ready to sell your life insurance policy? Find out the what your policy could be worth within minutes.