What Happens When You Prematurely Terminate Your Insurance Policy?

We all understand that insurance policies are a foundational building block of financial freedom. They protect against unforeseen situations, and also offer a form of savings and investment for most.

But there are times in which you find you can’t upkeep the payments for your insurance policies. This could be due to debt — personal or business debt, incurred due to being retrenched, or the failure of a business. Or serious health issues that call for immediate medical attention, and prevent you from resuming regular work.

In these situations, many will consider terminating their insurance policies, in order to alleviate the burden. In some cases, you might get some cash back too, as part of the surrender value. But is this worth it?

How to figure out your policy’s surrender value

If you surrender your policy to the insurance company before maturity, you will receive a sum of money, known as the surrender value.

There are two types: the guaranteed value and the non-guaranteed value, depending on the type of endowment policy you have, participating (par policies) and non-participating (non-par policies).

This table illustrates how the bonuses work along with the type of policy structure:

Endowment PoliciesGuaranteed ValueNon-Guaranteed Value
(Not fixed; Determined annually; Depends on Participating Fund, Value of Fund’s Asset, Investment Performance & Outlook) *Paid on Top of Surrender Value
Participating
(Par Policies)
Guaranteed Returns
(Amount being promised)
Reversionary BonusesCash DividendsTerminal Bonuses
Declared annually and becomes part of the guaranteed sum assured.

*If policy is surrendered, only a portion of the accumulated will be payable.

Do not add on to sum assured; Typically declared as immediate cash payments with choice to:

  • Convert to additional sum assured
  • Apply to future premiums reduction
  • Re-invest with insurer
May be payable when policy is surrendered, claimed, matured. Calculated on top of reversionary bonus.
Non-Participating
(Non-Par Policies)
Fixed/ Guaranteed BenefitsNone

Table by REPs Holdings

As you can see, the early termination of your policy will return you an amount that is less than the total amount that you have paid over the years.

Selling your policy to a broker 

One option to consider are third-party vendors who are willing to buy over your policy, and give you a sum that’s higher than your surrender value.

REPs Holdings, one such broker, answered these FAQs:

Q: Is it legal to sell your policy? 

A: It is legal to sell your policy to a third party and this is done through a legal transfer of ownership from one party to another.

Q: Is your company regulated by MAS? 

A: No, REPs Holdings is not regulated by MAS as we are not required to be regulated, but the transfer process of policy ownership is.

Q: Can I still make a claim after? 

A: No. Once you have sold your policy, you have already forfeited your rights to make claims. All rights will be transferred to the vendor.

Q: What kind of policies do you take in and how long does the process take?

A: REPs Holdings takes in endowment and whole life policies. It will take about 20 minutes for us to settle the documents over the insurers’ customer service counters.

This article is a guest contribution by REPs Holdings.

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