Terminating a whole life insurance policy is a big financial decision that should not be taken lightly. Whole life insurance is an insurance policy that ties together a term life policy with an annuity product. Each month, the insured person pays into a whole life policy increases the value of the annuity and keeps up coverage on the term life policy. When the policy is terminated or cashed out, the insured can only get the value of the annuity up to that point.
The amount that a person can receive by terminating their whole life policy depends on several factors. The type of annuity, the age of the person, the length of time he or she has had the policy, and sometimes even market conditions will all work together to determine how much a whole life policy is worth.
It can take decades for the annuity attached to a whole life policy to reach its full potential. During the first several years of investing, it is not uncommon for the annuity to be worth less than what has been paid into it. The only way to know for sure how much your annuity is worth is to contact your insurance agent and ask what the cash out value of the policy is.
Because of the potential to lose money by cashing out a policy, the decision to stop making payments on a while life policy is very important. In many cases, people purchase these policies as a way of providing for themselves in retirement. By cashing out the policy, these individuals must start their retirement saving all over.
To make the decision on whether cashing out is the right decision for you, consider how much the money you pay each month would earn in a standard investment such as stocks or government bonds. Consider several different scenarios in order to determine if it makes sense to keep investing in a whole life policy, or cash out and purchase a term life policy if you still need some type of life insurance for your family. There are several online calculators that can help you to look at different scenarios and make a decision.