When you make the initial purchase, life insurance feels like one of the most important acquisitions you can make. This is correct. However, part of what makes purchasing a life insurance policy seem important is its long duration – sometimes lasting policyholders their entire lives. This makes it easy for you to forget about an old life insurance policy. Luckily, you’ve remembered and now we can explore some of the ways you can reclaim value from your old life insurance policy.

Spoiler alert: if your insurance was a term life insurance policy, you likely won’t receive any money if the policy has expired.

What is life insurance?

In short, life insurance provides your beneficiaries with a cash payout if you die while the policy is in effect. The beneficiaries can be any person or organization that you choose, from children and spouses to businesses and charities. Life insurance is especially helpful for the beneficiaries while they are dependent on your income. For instance, your death will affect your children’s financial outlook if your income supports them.

Do you own your life insurance policy?

The most important question in determining whether an old life insurance policy is worth anything is whether you own the life insurance policy. One of the best parts about receiving a payout from a life insurance policy is that the fee paid to you is not subject to taxes.

A policy you own

In the case that you own the policy, you are the policyholder and of course, you’re still alive. In that case, you can check if your insurance policy has expired. Either way, you can still contact your insurance company to see if you’re able to extract some value from the life insurance policy.

A policy you don’t own

Usually, you check a policy you don’t own because the policyholder has died. If you are a policy beneficiary, then it’s in your interest to check if you can receive a payout from the policy. Normally, insurers will pay out a life insurance policy within 5 years of the policyholder’s death. In the case you don’t claim your payout within 5 years, it is sent to the policyholder’s estate and will be subjected to taxes.

Of course, you’ll need to prove that the policyholder has died to receive your payout. You must provide a certificate of death along with personal identification to stake your claim as the beneficiary.

Term Insurance vs. Permanent Life Insurance

As we mentioned previously, you probably can’t lay claim to an expired term insurance policy no matter whether you are the policyholder or the beneficiary. However, permanent life insurance will almost always provide a payout.

Term Life Insurance

This type of life insurance is known as “term insurance” because it only offers life insurance for a fixed term. The policy will typically last you for 20 years, after which you need to renew it. Furthermore, insurance companies can reject your request for renewal. Often, this is because your circumstances and therefore your insurability have changed over the past 20 years.

Since this is the most common type of life insurance, most will default to purchasing this one. However, there are drawbacks. Once the term of the policy has ended, your insurer is no longer responsible for the payout and your policy becomes worthless.

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Permanent Life Insurance

Also known as “cash value insurance”, permanent life insurance solves the main issue with term insurance – permanent insurance lasts you your whole life. Naturally, this comes at a cost. It is recommended that younger people opt for a term life insurance plan because permanent policies are quite expensive. After all, you’ll need to pay premiums every year until you die.

By nature, permanent life insurance offers you a wide degree of flexibility. For instance, policyholders may borrow against the cash value of the payout that you receive at your death. Note that such an action will reduce your death benefit by the amount that you borrowed against the policy.

In certain cases, a permanent life insurance policy is comparable to an investment. For instance, variable life insurance will put the money from your premiums into safe investments like mutual funds. Hopefully, this will increase the cash value your beneficiaries receive at the end of the policy. However, it’s also possible that this investment strategy fails and that the benefit decreases from what it could have been.

Should I get cash value insurance?

With the aforementioned factors in mind, cash value life insurance is preferable when you are older. Since it’s more likely that you will die, premiums will be higher than when you were younger no matter what type of life insurance you purchase.

On the other hand, you might not even need life insurance when you’re older. After all, your dependents age as you do. By this point, many find that their children can support themselves, and perhaps your spouse will receive a payout from your will. Consequently, many opt for a combination of term insurance and permanent insurance. The term insurance will cover you while you’re still supporting your children. Meanwhile, you will also maintain a small cash insurance policy to account for expenses on things such as funerals when you die.

Steps to check your life insurance policy

Checking if your life insurance policy is worth anything isn’t difficult. Once you have your documents in order, your insurance company should point you to the steps you need to take.

1. Get a copy of your life insurance policy

Your first step should be to obtain a copy of the policy. If you’re the policyholder, you should be able to access your policy through your financial advisor. The same conditions apply if you’re a beneficiary, though you might need a lawyer instead. Once you have the life insurance policy document, you must obtain the policy number.

2. Contact the insurance company

With your insurance policy number in hand, you can ask your insurance company for information. Of course, you’ll also need to identify yourself reliably, so the company knows you’re not an impostor.

Sometimes, insurance companies will merge or go bankrupt. This means that you might have signed your old insurance policy with a defunct company. Not to worry, you can review the records of your state insurance bureau to determine which company took over the policy and then contact them.

3. Is the insurance policy still active?

After you contact the insurance company, they will likely provide you with a policy-in-force document that details your coverage. The most important thing is for you to check whether the policy is still active. A permanent insurance policy is always active, a term life insurance policy is active only for the term specified.

4. Review the details of the policy

The first thing you should look for on your policy-in-force document is the present cash value. This information will tell you how much the policy is worth today. However, the document contains far more details.

Aside from cash value, this document also outlines your surrender value and death benefit. The surrender value tells you how much you receive in the case that you surrender the policy. Meanwhile, the death benefit outlines how much your beneficiaries will receive if you, as the policyholder, die today. Furthermore, the document will outline any outstanding cash withdrawals or loans against the value of the insurance policy.

If at any point you failed to pay the policy premiums, the document will also give you a policy-in-force illustration of your policy’s benefits and you can see the effect of your failure to pay.

5. Cash out the policy

Once you’ve proven that you’re the policyholder or a designated beneficiary, you can cash out your insurance policy. Do not take this decision lightly, there are many ways you can recover the policy’s value.

Can I sell my old life insurance policy?

Interestingly, many people are unaware that you can sell your insurance policy. Some senior policyholders opt to obtain a life settlement. This will “settle” your life insurance policy and in return, you’ll receive a lump sum in cash.

For those who are terminally ill, you could receive a viatical settlement which you might need to compensate for some of your healthcare costs. Alongside life settlements, viatical settlements will give you more value than a loan or a withdrawal from your insurance policy. A life insurance policy could be worth up to 60% on the secondary market.

Final Thoughts

In general, the value of your life insurance policy depends heavily on the type of coverage you have. Those with term insurance policies will not receive a payout after their term has expired. Moreover, the payout a policyholder can receive before their death is somewhat limited in contrast to the death benefit.

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