Selling vs. Surrendering Your Life Insurance Policy: What’s the difference?

Rebecca Parson
Rebecca Parson

Rebecca Parson


Rebecca Parson is a financial and tech writer with 10 years of experience writing about topics such as life insurance, commodities investing, and the SaaS industry. She has a master’s degree from Johns Hopkins University and a bachelor’s degree from the University of Mary Washington. Her writing has appeared at,,,,, and more.

Brian OConnel
Brian OConnel

Brian O'Connel


Brian O’Connell has been a contributing writer for U.S News & World Report since 2016. A former Wall Street bond trader and the author of two best-selling books; “The 401k Millionaire” and “CNBC’s Creating Wealth”, he has 20 years experience covering business news and trends, particularly in the business and financial sectors. He believes education is the best gift a financial consumer can receive – and brings that philosophy to every story he writes. His byline has appeared in dozens of top-tier national business publications, including CBS News, Bloomberg, Time, MSN Money, The Wall Street Journal, CNBC,, Yahoo Finance, CBS Marketwatch, and many more.

By Rebecca Parson, Brian O'Connel
Author, Contributor, Life Insurance

As you age, your reason for having life insurance changes. You might get a policy to protect your children, keep it to make sure your mortgage gets paid off, or as an estate planning tool. But what happens when you can no longer pay your premiums or find it’s not worth keeping?

When it’s time to let go of your life insurance policy, you have two options: sell it or surrender it. Selling a life insurance policy is often sold with the help of a life settlement broker, where a third party gives you a lump-sum cash payment in exchange for your policy. Surrendering your life insurance policy means your policy ends, and your insurance provider pays you the policy’s cash surrender value.

But how do you choose whether you sell or surrender your life insurance policy? Here’s what to consider.

Why get rid of a life insurance policy?

There are two common reasons for doing away with a life insurance policy: either you don’t need it anymore, or it’s no longer a financial priority.

Most people take up a life insurance policy to ensure that their children or spouse don’t struggle financially in the eventuality of their premature death. Life insurance provides peace of mind that while the policy is in force, the insured person’s loved ones are financially secure. But once a person’s children are all grown up and a couple’s savings are sufficient, the need for life insurance wanes.

On the other hand, many seniors struggle to pay their life insurance premiums and question whether they can afford their policies. Selling or surrendering a life insurance policy often becomes a source of much-needed cash for fixed-income retirees.

How Do Life Settlements Work?

A life settlement is the term for selling your life insurance policy through a life settlement provider to a company that buys life insurance policies. A life settlement broker is the one that shops your policy to relevant buyers. After the transaction, the life settlement buyer is responsible for making premium payments and keeps the death benefit when the insured person dies. You walk away from the transaction with a single cash payment.

How much cash you receive in a life settlement depends on your life expectancy, future premiums owed, and the face value of your policy. According to the Financial Industry Regulatory Authority (FINRA), a life insurance policy tends to sell for significantly more than its cash surrender value.

Example: Jimmy, a 75-year-old man, can no longer make the premium payments on his whole life insurance policy. He sells the policy to a life settlement buyer for 6 times the amount of his policy’s cash surrender value. The life settlement buyer continues to make premium payments until Jimmy dies, when the buyer will receive the policy’s death benefit.

Most types of life insurance, including term life insurance, can be sold as a life settlement. The sale of variable life insurance policies is subject to federal securities regulations, and life settlements related to other policy types are state-regulated. There are tax implications of life settlements; talk to a tax advisor to learn more.

That said, not every policyholder is qualified to sell their policy in a life settlement transaction. Generally, life settlement buyers require that the insured person is at least 65 years old if he is in good health, less if his health is poor. An insured person with a life expectancy of more than 20 years will have a harder time finding a buyer for their life insurance policy. 

A life settlement is similar to a viatical settlement, which is the sale of a life insurance policy when the insured person has a chronic or terminal illness, according to the National Association of Insurance Commissioners. 

What is Surrendering a Life Insurance Policy?

You can think of surrendering a life insurance policy as canceling the policy. Upon surrender, the policy ends; premium payments stop, and the insurance company will retain the policy’s death benefit when the insured dies.

In the event that you surrender a permanent life insurance policy, your life insurance company will send you the full balance of the policy’s cash surrender value. A policy’s cash surrender value is its cash value minus surrender fees. Surrender fees should not be more than 10% of the policy’s cash value, but some insurance companies will deduct as much as 35%, per Experian. Much of this depends on how long the insured has held on to the policy and the policy specifics as detailed in the policy itself. 

In general, surrender fees are highest at the onset of your policy. As time passes, the surrender fee percentage may decrease, even to 0% (after 10 or 20 years depending on the policy).

Example: Jill is considering surrendering her $2,000,000 whole life insurance policy that has accumulated $300,000 in cash value over 18 years. After a 4% surrender fee, Jill received an offer from the insurance company of $282,000. She then decided to contact a life settlement broker. After collecting all the relevant information including medical records, policy illustrations and other policy documents, the broker put it on the life settlement market. She received an offer from a life settlement buyer of $981,000. 

Term life insurance policies have no cash surrender value because they don’t build cash value. Upon surrendering a term life insurance policy, you stop paying your premiums, but you don’t get a refund on premiums paid or any cash payment. 

Selling vs. Surrendering a Life Insurance Policy: 5 Things to Consider

Like any financial decision, your circumstances will drive whether you sell or surrender your life insurance policy. Here’s what to think about before you sell or surrender your policy:

  • See if you’re eligible for a life settlement. While most types of life insurance policies can be sold in a life settlement, not all insured people qualify. Talk to a financial advisor or a life settlement broker to learn more about your eligibility.
  • Find out your policy’s surrender value. You can ask your insurance provider to tell you how much you stand to receive if you walk away from your life insurance policy. You can expect that life settlement buyers will offer you more than this amount to buy your policy from you.
  • Request offers from multiple life settlement buyers. Each buyer may have different underwriting policies that result in varying cash offers. That’s why it’s wise to work with a life settlement broker to help you find the best deal (Note: Life settlement brokers retain a portion of your settlement as their payment).
  • Consider your timeline. It generally takes longer to sell a policy than surrender it. If you’re in a rush to offload your policy, you may have no option but to surrender it. However, if you can afford to wait about eight weeks — the average time it takes to complete a life settlement transaction — you stand to benefit more from selling your policy instead. There are buyers that will offer to help you with premiums until the life settlement is completed. Reach out to the team at Beca Life to learn more
  • Meet with a financial advisor. Making changes to your life insurance portfolio shouldn’t be taken lightly. Talking to a trusted financial advisor can provide some assurance that you’re doing the right thing by selling or surrendering your policy. 

Bottom Line

Once you’ve decided that it’s time to part ways with your life insurance policy, it’s time to figure out the best route, whether selling your policy through a life settlement or surrendering it back to your insurance company. 

While life settlements tend to provide the most significant cash benefit, not all policyholders are eligible. When exploring a sale of your life insurance policy, it’s smart to discuss your options with trusted financial advisors.

Sell your life insurance policy for cash.

See if you qualify now.

We’re here to help. Speak with a Policy Specialist today at +1 848-456-8333