If you can no longer afford to make payments on your policy, it will lapse after a certain time. When that happens, your insurance company can cancel your policy, keeping most of the funds you’ve contributed over the years without needing to pay out. With certain life insurance policies, you can receive what’s called a cash surrender value upon a lapse or cancellation.
Cash value is part of what you pay through your premiums. It’s the portion of your policy that builds interest over time. When you prematurely end your life insurance policy, your cash surrender value is equal to this amount minus any fees and surrender charges your insurer requires.
While your cash surrender value can provide a boost to your funds, cashing out through a life settlement company can give you a payout that’s 7.8 times higher than that value on average. In some cases, there is no cash surrender value for a lapsed policy. Trading in for a life settlement can be especially beneficial in these cases.