Thinking of surrendering your insurance? Selling it may make you more money for it
Insurance, the most fundamental and commonly used form of risk management. We buy it, in a way, to “expect the unexpected” and to make sure that we are financially taken care of in unlikely, but possible, detrimental situations. When asked to think of types of insurance, ones that often come to mind include: life, disability, health, property, home and auto insurance.
But, what happens when we are unhappy with our insurance policies, but we are still under contract? This is where surrendering or selling your insurance policy can come in handy. Surrendering your insurance is not uncommon, in fact, it is increasingly becoming more popular, especially among Singaporeans.
In Singapore alone, the amount of insurance policies that were surrendered from 2011 to 2015 spiked from S$839.5 million in surrenders to a whopping S$1,220 million according to the Monetary Authority of Singapore (MAS).
The number of people who are surrendering their insurance has been exponentially increasing, especially in the West in places such as the U.K. and Europe. In the West, the policyholder is expected to get third party quotes before they decide to surrender to their insurer or assign it to a third party.
Believe it or not, in Germany they sold more than 100,000 life insurance policies with an actual surrender volume of 5.2 billion Euro through the secondary market (totaling to approximately EUR 50,000 per contract).
Surrendering vs selling?
Every policyholder has surrender rights. Not quite sure what those are? A surrender right is the opportunity to cancel a regular payment or life insurance contract in exchange for its cash value. You may surrender your insurance at any time while also keeping your credit score totally and completely unaffected. Your insurance company will then present you with a cash surrender value, which is how much money you will receive in return.
While surrendering insurance is a popular decision amongst many people, there is an alternative option that many of these people aren’t aware of, which is selling. A number of third party companies specialise in purchasing (and sometimes reselling) insurance policies. Selling your insurance to such a company presents you the opportunity to possibly receive a higher cash back value than you normally would receive by surrendering. Do note, however, that the sale of insurance policies is not currently regulated by the MAS.
Why would I want to do this?
Purvis Capital, a related company of Phillip Capital that buys over both endowment and whole life insurances from individuals, gave us at ZUU a little insight on why one would want to sell their insurance rather than surrender it.
- The prevailing coverage is no longer relevant
- Excessive coverage
- Better investment and business opportunities
- Better Management of Cashflow
How does it work?
Surrendering your insurance isn’t as dramatic nor as difficult as it may sound. All you have to do is contact your insurer and tell them that you are interested in surrendering. What happens after that depends on the length of the policy, your insurer’s procedures for handling neglected payments.
If you are interested in selling your insurance policy, you will handle the situation a little differently. First, you will need to contact your insurance company to quote the surrender value of your policy, and request a copy of all of your policy information. Then armed with that information, you can seek quotes from various third parties like Purvis Capital who may make an offer on your policy, sometimes as quickly as the next business day.
Once you have decided to sell your policy to the third party, the exchange of ownership would likely take place at your current insurance provider’s customer service centre, and the paperwork will be handled by the third party in your presence.
With Purvis Capital, you could stand to receive your cheque as soon as the transfer of ownership is signed.
What if my insurance policy is worth nothing?
There have been various case studies where insurance policy holders have tried to sell their insurance, but their providers would not provide them with a cash payout because their policy was less than two years old and had no cash value. In some instances, Purvis Capital was willing to offer a reasonable cash payout.
In another case, a school bus driver lost his job and was unable to pay his insurance premiums when he could not get a new job. He approached Purvis Capital to see if he could sell his policy for more than his surrender value. Purvis Capital eventually offered him S$7,000 more than his insurance provider at that time.
That being said, Purvis Capital also admitted that there were times when they were unable to offer a higher cash value on a policy than the insurance company.
What does this mean if you are considering surrendering your insurance?
It is much like selecting a contractor to renovate your home. You would not sign up immediately with the first company you meet. You would take your floor plan, and receive quotes from a number of design firms before choosing the one with the best value – even if it is the very first company you met.
In the same thread, before you accept the cash payout from your insurer, shop around and get quotes from other third party companies. In this way, you’ll be best equipped to make an informed decision.