Many money-back policyholders in Canada find themselves wondering whether it is possible to surrender the policy before its maturity. Life is quite unpredictable, and the financial needs of a person keep on changing- that’s why one must know what to do with the policy. This blog will discuss whether you can surrender a Money Back Life Insurance Policy before maturity, the consequences, and the pros and cons of doing so. Understanding your policy and the potential outcomes can help you make an informed decision.
What Is a Money Back Life Insurance Policy?
This type of insurance product provides life cover plus payment of interest periodically during the policy term. It’s devised so that the balance amount comes at regular intervals through this kind of insurance in the form of a percentage of the sum assured, and the balance is paid as maturity or death as there is passing away of the policyholder during the policy term.
Money Back Life Insurance Plans can provide financial liquidity during the term of the policy, and the proceeds can be used to meet milestone events, education costs, or other unforeseen financial requirements. In contrast to traditional Life Insurance plans, where the payout is only available at maturity or death, a Money Back Life Insurance plan can facilitate the availability of funds even during the tenure of the policy.
How Does a Money Back Life Insurance Policy Work?
A Canada Money Back Life Insurance Policy pays the insuranceholder periodically. Generally, the policy offers a payout in terms of a fixed percentage of the sum assured. The remaining sum assured will be paid out at the end of the policy term, along with bonuses accrued as maturity benefits.
For example, on a money-back policy with a 20-year term, you would receive 20% of the sum assured every five years. At the end of the term, you would have the other 40% plus any bonuses that you might be eligible for. In case the policyholder dies within the term, all the sum assured would be paid to the nominee based on whatever payouts may have been made already.
While this policy may attract whoever through regular payouts, there are those who might be forced to draw the full surrender value before maturity; it thus raises questions about whether you can surrender a Money Back Life Insurance Policy before it matures.
Can I Surrender My Money Back Life Insurance Policy Before Maturity?
You can cash in a Money Back Life Insurance before maturity, but you need to know what that entails fully before making the decision. Surrendering means that you end the contract with the insurance firm, and that means you lose your claim for all future payouts or bonuses that might have been coming.
In Canada, the sum received when surrendering a Money Back Life Insurance Policy is known as the surrender value. The surrender value is controlled by the premiums paid and the period covered under the policy. In general terms, the surrender value is always lower than the total premium paid, especially in terms of the early surrender.
What Is the Surrender Value?
The surrender value of a policy is the amount that is provided to the policyholder in case he or she decides to cancel the policy before maturity. It is calculated based on total premiums paid after all fees and charges have been withdrawn from this amount.
The surrender values can be divided mainly into two categories.
- Guaranteed Surrender Value:This is the minimum amount that the insurance company guarantees to pay if the policy is surrendered. It is usually a percentage of the total premiums paid, excluding any bonuses or additional benefits.
- Special Surrender Value:This is the surrender value that may be offered depending on the number of premiums paid and the time the policy has been in force. It may be higher than the guaranteed surrender value and is often calculated based on the accrued bonuses and the policy’s duration.
Before surrendering, it’s essential to check your policy documents or ask for Money Back Life Insurance Quotes to get an accurate idea of the surrender value.
Factors That Influence the Surrender Value
Several factors determine how much you will receive if you surrender a Money Back Life Insurance Policy before maturity. These include:
- Duration of the Policy:The longer the policy has been in force, the higher the surrender value is likely to be. Policies surrendered early in the term tend to have a lower surrender value because the premiums paid have not had sufficient time to accrue.
- Number of Premiums Paid:If you’ve paid more premiums, the surrender value will generally be higher. However, you may still lose out on bonuses and other benefits.
- Bonus Accumulation:Some money-back policies accrue bonuses over time. These bonuses may not be fully included in the surrender value if the policy is terminated early.
- Policy Terms and Conditions:Each insurance provider sets its own terms regarding the surrender value calculation. It’s essential to review your policy or consult with your provider to understand the exact terms.
- Surrender Charges:Insurance companies often impose surrender charges, especially for policies terminated in the early years. These charges reduce the surrender value and can be significant, particularly if the policy is surrendered soon after it is taken out.
Why Would Someone Want to Surrender Their Money Back Life Insurance Policy?
There are several reasons why a policyholder may choose to surrender their Money Back Life Insurance Policy in Canada before maturity:
- Financial Emergencies:Life can present unexpected financial challenges, such as medical emergencies, job loss, or significant expenses. In such cases, surrendering a Life Insurance policy may seem like a quick way to access funds.
- Policyholder No Longer Needs the Policy:A policyholder may no longer feel the need for Life Insurance due to a change in circumstances. For instance, if their financial situation has improved or if they’ve secured alternative coverage, surrendering the policy may appear to be an option.
- Inability to Continue Paying Premiums:If a policyholder is unable to keep up with the premium payments, they might consider surrendering the policy as a way to cut expenses and access the surrender value.
- Seeking Better Investment Options:Some policyholders may feel that their Money Back Life Insurance Plans are not providing the returns they expected. They may look for better investment opportunities and consider surrendering the policy to free up funds.
Pros and Cons of Surrendering a Money Back Life Insurance Policy Before Maturity
Like any financial decision, surrendering a Life Insurance policy comes with its pros and cons.
Pros:
- Immediate Access to Cash:Surrendering the policy provides access to the surrender value, which can help meet immediate financial needs or emergencies.
- Elimination of Premium Payments:If the policyholder is struggling to make premium payments, surrendering the policy will relieve them of this financial obligation.
- Flexibility to Invest in Other Opportunities:By surrendering the policy, the policyholder may be able to reallocate the funds into more lucrative investment options.
Cons:
- Loss of Coverage:Surrendering the policy means that the Life Insurance coverage will no longer be available. If the policyholder passes away after surrendering, the beneficiaries will not receive any death benefit.
- Lower Returns:The surrender value is often significantly lower than the total premiums paid, especially if the policy is surrendered early.
- Loss of Bonuses:Money-back policies typically accrue bonuses over time, and surrendering the policy early may mean forfeiting these bonuses.
Alternatives to Surrendering a Money Back Life Insurance Policy
Before deciding to surrender your policy, it’s essential to explore other options that may help you maintain coverage and avoid significant financial losses.
- Policy Loans:Some Money Back Life Insurance policies allow policyholders to take out a loan against the policy’s cash value. This can provide access to funds without surrendering the policy and losing coverage.
- Partial Withdrawals:Depending on your policy, you may be able to make partial withdrawals from the cash value without surrendering the entire policy. This option can provide liquidity while maintaining some coverage.
- Premium Payment Adjustment:If you’re having difficulty paying premiums, check if your insurer offers the option to reduce the premium amount or switch to a paid-up policy, which means no further premiums are required, but the coverage continues at a reduced amount.
- Sell Your Policy:In some cases, policyholders may be able to sell their Money Back Life Insurance Policy to a third party through a life settlement. This can provide a lump sum payment that may be higher than the surrender value, though this option may not be available in all provinces or for all policy types.
Final Thoughts
Actually, in Canada, one can surrender a Life Insurance policy before maturity, but it is not usually done lightly. Its effect comes with immediate financial relief, loss of coverage, and unfavourable returns. These considerations will make the surrender value, charges, and long-term effects crucial elements for a decision.
If you’re not really that sure whether surrendering your policy is the right thing to do, then the best alternative would be to consult a professional. Receive Money Back Life Insurance Quotes from different insurers and check other options to make the right decision.
This decision will depend purely on the condition of your finances, future goals, and the conditions of a policy. One should weigh all the pros and cons and look for some other alternatives to figure out what would suit the situation best.
