Wednesday, December 20, 2006

Consider an alternative to terminating your life insurance policy

If you terminate your life insurance policy, you get a cash value. This is usually quite low, and is less than the premiums that you have paid during the first 10 years.
The insurance company makes a profit on your terminated policy.

If you keep the policy for another 5 or 10 years, you may find that the cash value at the later date represents a good investment. In this case, it is better for you to take a loan and continue the policy (if the interest rate on the loan is low).

You have another option. You can sell your life insurance policy to a third party, who can offer you a higher value. The third party owns the policy and keeps it for another 5 or 10 years (or until the maturity date). They may find the return to be quite attractive.

You can study this arrangement, by asking your insurance company to quote:

- the cash value now
- the cash value in 5 or 10 years time
- the premium that you now pay
- you can calculate the yield for the next 5 to 10 years on this approach.

If the yield is 4% or better, it may be better to sell your insurance policy, rather than surrender it.

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