Monday, May 30, 2016

Get a higher surrender value for your policy

The life insurance companies make a big profit when their policyholders surrender their policies. Here is an example.

The policyholder pays a monthly premium of $500 for five years. A total of $30,000 was invested in the policy. The policyholder is not able to continue the policy due to loss of job or cash flow problem.

The policyholder wants to "surrender" the policy. How much does the company pay in surrender value? Say $12,000. The company might have spent $10,000 in commission and expenses, so the company get to make a profit of $8,000 on this transaction.

Suppose 5,000 policyholders surrender their policies each year. This works out to $40 million of profit in each year. That is a huge profit. This is the profit that comes out of the misery of the people who lost more than half of their hard earned savings.

Why does the company pay such a poor surrender value? Why do they confiscate so much of the hard earned savings?

The simple answer is - the insurance company is behaving like a monopoly. The policyholder has no choice in the transaction. He or she has to surrender the policy back to the company for whatever they offer to pay.

The hard pressed policyholder now has a choice. An investment company has been set up in Singapore which is in the business of taking over the policies from the hard pressed owners and paying an amount that is higher than the surrender value offered by the insurance company. Instead of getting $12,000 (say) as surrender value, the owner can sell the policy to the investment company for (say) $15,000.

The investment company has worked out its maths. They will continue to pay the premium to the maturity date. They expect the maturity value to give them the target yield on their purchase price and the future premiums that they have to pay.

If you know of any hard pressed policy owners who wish to look for a higher surrender value, send an email to

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