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What does it mean to surrender your insurance policy?

On Behalf of | Dec 29, 2022 | Firm News

You and your spouse will determine the fate of different kinds of property in your divorce. Your insurance policy is likely one of them. If you have taken out life insurance during your marriage, you might decide to surrender the policy in order to cash it out.

According to The Motley Fool, some life insurance policies allow you to cancel your policy and get back your investment in the policy, minus surrender charges and other expenses. This option has its benefits but also potential drawbacks.

Reasons to surrender a policy

In the case of your divorce, your life insurance may be a marital asset. You and your spouse could surrender the policy to allow you to split the proceeds between the two of you. This can be an attractive option if you and your spouse need cash quickly.

Additionally, cancelling the policy removes one more asset that involves the two of you. This may help you and your spouse make a cleaner break from each other.

Reasons to not surrender a policy

Surrendering life insurance is not the best option for all couples. It may be hard to get another life insurance policy after closing out your current one, particularly if you are getting older and have health problems.

In addition, your spouse might want life insurance to cover you if the two of you have children. In fact, a divorce judge could insist that you keep your existing coverage in case something happens to you and you can no longer pay child support.

Consider your situation

How you will deal with your current insurance policy will depend on your circumstances. Divorcing couples have differing needs, so be sure you and those you care about will stand to benefit from your choices.