Should policyholders consider financing options instead of prematurely surrendering their policies?
Policyholders often face financial challenges that lead them to prematurely surrender their policies to access immediate funds.
- Dec 21, 2024,
- Updated Dec 23, 2024 11:24 AM IST
Life insurance policies are long-term financial instruments designed to provide stability and security during unforeseen circumstances. However, policyholders often face financial challenges that lead them to prematurely surrender their policies to access immediate funds.
While this may seem like a quick fix, it can have long-term repercussions. Instead, financing options can offer a less disruptive alternative.
Hanut Mehta, Co-Founder and CEO of Bimapay Finsure, says, "Surrender value financing allows policyholders to borrow against the surrender value of their insurance policies without giving up the policy entirely. This financing option provides immediate liquidity at a very low cost while preserving the policy's long-term benefits. Instead of prematurely surrendering a policy for its surrender value, which is often less than the policy's potential benefits, this alternative offers a more financially sound solution."
Preserve policy benefits Surrendering a policy means losing its benefits, such as death payouts, maturity proceeds, or accumulated cash value. By leveraging surrender value financing, policyholders can address immediate financial needs without compromising the protection and security their policies offer to themselves and their beneficiaries.
Maximise financial gains The surrender value of an insurance policy is usually much lower than its actual accrued benefits or face value. Surrender value financing enables policyholders to access funds that align more closely with the policy’s worth, helping avoid the financial loss that comes with outright surrender.
Avoid tax implications and replacement costs Surrendering a policy might trigger tax liabilities on the difference between the surrender value and premiums paid. "Financing options, on the other hand, involve interest payments that are often more manageable and do not affect the policy's tax benefits," added Mehta.
Furthermore, financing eliminates the need to purchase a new policy later, avoiding high replacement costs.
Flexible and tailored solutions Surrender value financing is designed to address temporary financial challenges, offering flexibility in repayment terms. It allows policyholders to meet their cash flow needs while maintaining their long-term financial plans.
Life insurance policies are long-term financial instruments designed to provide stability and security during unforeseen circumstances. However, policyholders often face financial challenges that lead them to prematurely surrender their policies to access immediate funds.
While this may seem like a quick fix, it can have long-term repercussions. Instead, financing options can offer a less disruptive alternative.
Hanut Mehta, Co-Founder and CEO of Bimapay Finsure, says, "Surrender value financing allows policyholders to borrow against the surrender value of their insurance policies without giving up the policy entirely. This financing option provides immediate liquidity at a very low cost while preserving the policy's long-term benefits. Instead of prematurely surrendering a policy for its surrender value, which is often less than the policy's potential benefits, this alternative offers a more financially sound solution."
Preserve policy benefits Surrendering a policy means losing its benefits, such as death payouts, maturity proceeds, or accumulated cash value. By leveraging surrender value financing, policyholders can address immediate financial needs without compromising the protection and security their policies offer to themselves and their beneficiaries.
Maximise financial gains The surrender value of an insurance policy is usually much lower than its actual accrued benefits or face value. Surrender value financing enables policyholders to access funds that align more closely with the policy’s worth, helping avoid the financial loss that comes with outright surrender.
Avoid tax implications and replacement costs Surrendering a policy might trigger tax liabilities on the difference between the surrender value and premiums paid. "Financing options, on the other hand, involve interest payments that are often more manageable and do not affect the policy's tax benefits," added Mehta.
Furthermore, financing eliminates the need to purchase a new policy later, avoiding high replacement costs.
Flexible and tailored solutions Surrender value financing is designed to address temporary financial challenges, offering flexibility in repayment terms. It allows policyholders to meet their cash flow needs while maintaining their long-term financial plans.