Life insurance is big business. Every year life insurance companies sell life insurance policies worth billions of dollars in new annual premiums. Studies have shown that in 2018, there were 773 companies selling life insurance in the United States, and in 2019 57% of Americans owned life insurance.
Another interesting fact is this: each year, approximately $140 billion of life insurance is either lapsed or surrendered by policy owners age 65 and older. This is alarming since these people had paid life insurance premiums for years, and now their beneficiaries won’t receive a payout.
Many of the people that surrendered or lapsed their policies were unaware that another option existed for them that would keep them from losing a good portion of the premiums they had paid over the years. This option is called “a life settlement,” or in some cases, it’s called a “viatical settlement.”
You may be asking yourself at this point, “Can I sell my life insurance policy and avoid losing some of the money I paid for it all of these years?” We’re going to answer that question and many others about the requirements to sell a life insurance policy, how to sell a term life insurance policy for cash, various life settlement solutions, what your policy may be worth, and how a life settlement provider or life settlement brokerage fits into the equation.
Requirements for Selling Your Life Insurance Policy
It would be nice if selling your life insurance policy for cash was as easy as calling the agent or company that sold you your policy and telling them you wanted them to buy it back from you, much like you can with an automobile. But, there are no buy-backs from insurance companies or trade-ins for life insurance policies.
Fortunately, there is an entire industry that is regulated by your state that specializes in buying life insurance policies from people just like you. The companies that engage in these transactions are called “life settlement providers” or “viatical settlement providers.” We’ll talk more about them in a minute, but let’s look at the type of individual and policy type they’re interested in.
There aren’t a lot of requirements to sell your life insurance policy to a life settlement provider. They include:
- You must be age 70+
- Your life insurance policy must have a face value of $100,000 or more
- You must be a U.S. citizen
As you can see, it’s not too complicated at this point to sell your life insurance policy through a life settlement.
It gets a bit more complicated for a viatical settlement. In this case, the same parameters shown above still apply. Still, there is another requirement for viatical settlements: the insured individual on the policy must have a life expectancy of two years or less or be chronically ill.
When you sell your policy, you’ll no longer have to make the premium payment, but your family will no longer be the beneficiary of the policy – the new owner will receive the death benefit when you pass away.
Reasons Why You Might Sell Your Life Insurance Policy
There are many reasons people sell their life insurance policy, which might be good reasons for you to sell your policy. They include:
- You need more money for retirement
- You can no longer afford the premiums
- You need money for long-term care
- You need help paying your medical bills
- You bought the policy for a business, and the insurance is no longer needed
- You have too much life insurance in force at this point in your life
- You no longer have beneficiaries that are dependent on you financially
- Your term policy is about to expire
Is Now The Right Time For You to Sell Your Policy?
If any of these reasons ring a bell for you, a life or viatical settlement may be worth investigating. You may now be wondering, “When should I consider selling my life insurance policy?” These are a few important questions you can ask yourself to see if now is the right time for you.
- Do I still need my life insurance coverage? The best way to answer this question is with another question: “Do you have anyone in your life that is dependent on you financially?” It may be a spouse, children, parent, special needs or disabled child, or someone else important to you.
- Is the amount of my coverage worth the premiums I’m paying?, or am I getting my money’s worth? One of the items you’ve had on your budget for years has been your life insurance premium. You found it to be a good value when you bought it, but the world has changed financially as time has passed.
If you see that the death benefit amount is no longer satisfactory after the effects of inflation all of these years, a life settlement is an excellent alternative to continuing to pay premiums.
- What other financial assets do I have in my portfolio? You may never have thought of life insurance as being part of your portfolio, but if it’s a permanent policy, like a whole life or universal life insurance policy that has accumulated cash value over the years, it should be included as an asset. If you feel that you have plenty of other assets (stocks, bonds, mutual funds, real estate, etc.), it may be a good time to sell your policy.
- How badly do I need this policy? If your kids are grown and financially independent, your retirement plan can support you and your spouse for the rest of their lives, and you have enough savings to pay for medical and final expenses – it may be time to stop paying premiums and sell your policy.
Can I Sell My Term Life Insurance Policy?
Before we answer that question, let’s differentiate between term vs. cash value life insurance.
Cash value life insurance
(whole life, universal life, variable life) has two components: life insurance and a cash value (savings) element. A portion of each premium you pay goes towards both of these components, and over the years, the cash value grows from your deposits and the interest or investment return the cash value is credited with.
Cash value life insurance is also called “permanent life insurance” because the policy’s premiums and face amount will always remain the same, and the policy will stay in force as long as you continue paying the premium.
Term life insurance
is precisely what the name implies; it’s life insurance for a specific term of years (5, 10, 20, 30 years); after that, the protection expires, and the insurance is no longer in force.
As you can imagine, a buyer of a term policy will receive no benefit from their investment if the term policy expires before you die. For that reason, life and viatical settlement providers are most interested in your permanent life insurance policy.
There is one exception pertaining to term life insurance. If your term policy is “convertible,” meaning it can be converted to a permanent life insurance policy, then your term policy has value and is saleable. Not all term life policies are convertible; read yours carefully to see if it is.
Don’t lose your lifelong investment. Discover your policy’s value today.
How Much Will You Get For Selling Your Life Insurance Policy?
If you’re on our website and reading this page, you’re probably interested in selling your life insurance policy, and this is a big question that’s been on your mind.
Several factors will influence the amount of money you’ll receive for your policy. The face amount of your policy, the type of policy it is, the cash value of the policy, your health, your age…all of these factors are part of the formula used by life settlement companies to arrive at an offering price for your policy.
This isn’t set in stone, but you can estimate that you’ll receive 20-25% of your policy’s death benefit in cash. For example, if your policy has a face amount of $500,000, you can expect to receive approximately $100,000 to $125,000 in cash.
In this example, the investors that purchase your policy are willing to pay up to $125,000 in exchange for receiving a $500,000 payment when you die. Keeping in mind that they’ll now be paying the premiums on the policy, the shorter your life expectancy is, the better their investment return is. For that reason, viatical settlements are considered a better investment because your life expectancy is two years or less.
The Process For Selling Your Policy
Once you’ve spoken with a life settlement provider or life settlement brokerage and you’ve decided to sell your policy, you’ll start the selling process. There are four components of the process: application, underwriting, offer, and closing. Let’s look at all four.
Application: As with just about any financial transaction, there’s paperwork involved – and it all begins with the application. You’ll provide basic information about yourself and sign releases that allow the life settlement company to obtain and review your medical information. The buyer of your policy will pay any costs associated with obtaining your medical records.
Underwriting: During underwriting, your personal and medical information is reviewed. The life settlement company or brokerage will do a thorough analysis of the data to determine the probability of your policy being bought and an estimate of what the sales price would possibly be.
Offer: Once underwriting is completed, the life settlement provider will approach you with an offer, and if they’re a brokerage, they may have multiple offers for you. One type of provider isn’t necessarily better than the other, but some people feel more comfortable dealing directly with the company buying the policy.
Closing: Once you’ve accepted an offer, the closing process begins. Contracts, disclosures, authorizations, and releases must all be signed. Signatures are required from the policy owner, the insured (if that’s not also you), your beneficiary, and your spouse (if applicable).
Once that’s completed, the buyer places funds into escrow, and the necessary paperwork is provided to the insurance company for them to make the changes on their end. Typically, three to five days after the insurer confirms they’ve completed making the policy changes, your funds are released.
Before Selling, Check Your Life Insurance Policy’s Riders
In some cases, certain riders can affect your decision to sell your policy or the amount you’ll receive in a life or viatical settlement.
An accelerated death benefit rider obligates the insurance company to pay out a portion of the death benefit while you’re living in the case of a chronic or terminal illness.
A return of premium rider will provide you, or the policy’s buyer, with a return of the premiums paid at the end of the return period, which is specified in your policy.
You probably filed your policy away years ago, but it’s a good idea to get it out and read it or have it reviewed by your life settlement provider before you begin the selling process.
Frequently Asked Questions and Answers
If I sell my policy, what happens when I die?
After you’ve filled out the beneficiary change form and submitted it to the insurance company, the buyer of your policy will then receive the proceeds upon your death, not your family as you may have originally intended.
What if I change my mind after I sign the documents and have sold my policy?
Depending upon which state you live in and their regulations concerning life and viatical settlements, you may have a “recission period” that gives you time to change your mind and cancel the transaction.
How long will it take to sell my policy?
Every situation is different, but it will usually take 6-8 weeks from the point you submit your paperwork to the life settlement company until you receive your money.
How do I know if my life insurance policy would have an interested buyer?
If you’re 70 years of age or older and your policy has a face amount of $100,000 or more, there’s a good chance that your policy is desirable to a buyer. You won’t know until you talk with a representative at the life settlement company. They can give you a professional assessment of your situation at no cost to you.
When will I receive my money from the sale of my policy?
You’ll get paid after all of the necessary documents have been signed, and the insurance company processes the paperwork to confirm that the policy’s owner and beneficiary have been changed.
Don’t lose your lifelong investment. Discover your policy’s value today.