Strategy 76 of 107 · new for the five-year plan
Surrender a policy you no longer need, for its surrender value
What it is
Ask for the policy's account value, surrender value and any surrender charge.
Steps
- Ask for the policy's account value, surrender value and any surrender charge.
- Compare surrendering with a life settlement offer and with keeping it; if coverage is no longer needed, take the best.
- Send the proceeds after tax to principal.
Repeat: Once.
Measure: Surrender value after tax.
Try it in the calculator Enter its amount in "One-time amount to principal". Add a payoff goal of 5 years to see what is still needed.
Risks
- Gain above the premiums paid is taxed as ordinary income.
- Your heirs lose what the policy would have paid them.
- Surrender charges can be large in early years.
Who it fits
Grandmas and grandpas (62 and over), Higher net worth, with assets, Married couples, Average household
Needs
Owns a policy that is no longer needed
How predictable
Most predictable: once in place, the payoff date is arithmetic
A worked example (hypothetical, not guaranteed)
Picture a hypothetical household (grandmas and grandpas (62 and over)). They owe $300,000 at 6.5% with 30 years left. The required payment is $1,896 a month, and that payment, which comes from income, never changes in this example.
They follow the steps: ask for the policy's account value, surrender value and any surrender charge.
Suppose it brings a one-time $30,000 on principal. The loan would be paid off in 22 years 10 months instead of 30 years, saving about $134,798 in interest. To finish in five years, they would still need about $3,387 a month more from other strategies. That is why the five-year sequences stack several at once.
The amount above is chosen only to show the arithmetic. It is not an estimate of what this strategy will produce for anyone. Put real numbers from the fact finder into the calculator.
Sequences that use it
- Five-year sprint: 73 and over: Money that must come out anyway, a yearly free withdrawal, the tax saved by giving directly, and a policy no longer needed.
Sources and more information
Where to get help
Related strategies
- 75. Sell vested employer shares you already own
- 77. Sell some future structured settlement payments, only with court approval
- 74. Sell all or part of a business
- 78. Sell digital assets held outside retirement accounts
- 73. Sell a rental property and pay off the home
- 72. Live-in improve and sell, every two years, tax-free gain each time