You have a few options if you want to get cash out of your life insurance policy. If you have a whole life or permanent life insurance policy, you can work with your insurance company to surrender or “cash out” the policy. You may also be able to sell your life insurance policy to a group of investors. This process, known as a life settlement, can help you get the most possible cash from your life insurance policy.
According to the Life Insurance Settlement Association (LISA), your life insurance policy represents an important asset, much like your home or other investments. You own the policy, and you have the right to sell it if you wish. There are a few things you must do before you can sell your life insurance policy for cash.
Step 1: Understand your policy
Under the right circumstances, any life insurance policy (permanent or term) with a face value of at least $100,000 is eligible for a life settlement. People with a life expectancy of fewer than 20 years who no longer want their life insurance benefit should proceed with the process of getting quotes for their policy.
Step 2: Be fully informed
If cashing out your policy through the life insurance policy is an option, call the company to find out how much money you could receive if you decide to surrender the policy.
In general, people who are eligible to sell their life insurance policies receive more money than they would if they surrendered the policy to the insurance company in exchange for its cash value.
Step 3: Find out if you are eligible for a life settlement
There are several trustworthy life settlement companies online offering free life settlement calculators. To find out if you qualify for a life insurance settlement and to get an estimate of how much your life insurance policy is worth, you’ll need your policy type (term, whole, permanent, etc), premium, face value, and insured’s age.
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Step 4: Decide whether to use a life settlement broker
If you qualify for a settlement, you can get quotes from multiple investors through a broker or you can shop for a life settlement fund on your own by by working directly with licensed buyers, known as providers. If you decide to let a life settlement broker shop for the best deal, you will pay a fee for their service. A life settlement broker’s fee is typically a percentage of the life settlement amount. The broker should disclose their fees upfront.
Step 5: Talk with your accountant
Before pursuing a life settlement, be sure to talk with your tax advisor or a financial expert about possible tax consequences. Funds from a life settlement could affect your ability to receive government aid, as well.
How to Sell Life Insurance with a Life Settlement
The entire life settlement process could take up to three months. Working with a broker could take longer.
Life settlement qualifying (one to four weeks)
You’ll start by providing information about the insured and policy so that information can be gathered. The life settlement company will collect a detailed health history and gather your medical records. From the life insurance company, a policy illustration will be requested to understand the ongoing costs of the policy. Once all of the information is reviewed, the provider may offer to purchase your policy.
Life settlement quote (one week, or so)
Receiving a quote from a life settlement company doesn’t mean you’ve committed to selling your policy. Use this offer period to consider if selling the policy is the right choice for you. Talk to family that must be involved in the sale – the owner of the policy, the insured, the owner’s spouse and beneficiaries must acknowledge the sale. It is a good time to check with your accountant about potential tax implications.
Closing package (up to six weeks)
After accepting a life settlement offer, you’ll receive a closing package containing life settlement contract, change of beneficiary form (COB), change of ownership form (COO), and verification of coverage (VOC). The contracting timeline varies widely, with the biggest variables being how long it takes for the contracts to be signed and returned and how long it takes the life insurance company to confirm information.
Funds transfer (up to 3 days)
Once the change of ownership and beneficiary has been confirmed in writing, you will receive your settlement proceeds. Most buyers allow a choice between a wire or via check.
Frequently Asked Questions About How to Get Cash From Life Insurance
Can I cash out my whole life insurance policy?
Yes. If you own the policy, you can cash out, or surrender, your whole life insurance policy. The fastest way to confirm the amount of your cash payout from your policy is to call your life insurance company.
Can I get cash from a life insurance while still alive?
Yes. There are a few ways to get cash from your life insurance policy while you are still alive. You may be able to borrow from the cash value of your policy while keeping the death benefit intact. You can surrender your policy for its cash value or sell your policy through a life settlement.
What is the cash value of life insurance?
If you have a permanent life insurance policy with an account value and investment component, the cash value is the part of the policy earning interest. Under certain circumstances, you can borrow against or withdraw that money.
What is the cash surrender value for life insurance?
Cash surrender value in a life insurance policy is the amount of money the insurance company pays to the policyholder if the policy is voluntarily surrendered. It is the account value, less any surrender fees.
How much money will I get for my life insurance policy?
Surrender values are a function of how the life insurance policy has been funded over time. Life settlement values depend upon many factors, including the policy’s ongoing cost and expenses and the insured’s underwriting. While average valuations are about 20% of your policy's face value, the range is very wide reflecting the many different variables of every policy priced.