How to Sell Your Life Insurance Policy For Cash

How to Sell Your Life Insurance Policy For Cash

Table of Contents

What are the options if I no longer need my life insurance policy?

If you have decided that the life insurance policy you purchased years ago is not needed any longer, you have several options:

 

  • Surrender the policy for its accumulated cash value: as you pay premiums into your permanent life insurance policy, it builds a cash value. You can borrow against this once it has accumulated enough value, or if you decide to surrender your policy, you may receive a check for the cash value your policy has accumulated.
  • Allow the policy to lapse: if your main objective is just to get out from under paying your premiums, you may choose to stop paying them and allow the policy to lapse. This option will not provide you with any payout and your policy will terminate.
  • Sell your policy: If you have thought to yourself, “I want to sell my life insurance policy,” then you are likely aware that you may be able to receive cash from your policy.

 

Each of these options has its own considerations. It is important to understand how each option works before you decide which is best for you and your current situation. You should also understand that if you decide to choose either of the three options above, your life insurance will no longer provide your beneficiaries with a payout.

What are some reasons for selling your life insurance policy for cash?

Many things might factor into a person’s decision to sell their life insurance policy. If you have thought, “I want to sell my life insurance policy,” you might be considering any of these scenarios:

 

  • Saving money on premiums: if you no longer need your policy, paying a monthly or annual premium might be a financial strain that you don’t need. If you sell your policy, you can relieve yourself of that obligation.
  • Obtaining cash for retirement or other expenses: the funds from the sale of a life insurance policy can help provide you with financial stability throughout your retirement. You may be able to pay off a home, purchase a new home, or fund traveling or other life goals.
  • Help with medical expenses: healthcare expenses can be quite costly, especially if you have a terminal illness. Proceeds from either a traditional life settlement or a viatical settlement can help cover medical bills, home renovations to accommodate your changing needs, and other expenses related to your healthcare during the final years of your life. Your money is yours to spend how you see fit, so there are no restrictions.

 

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.

What Are The Steps To Selling Your Life Insurance Policy?

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. 

  1. 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 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.

  1. 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 a 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. 

  1. Closing package (up to six weeks)

After accepting a life settlement offer, you’ll receive a closing package containing a 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

  1. 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.

What about selling a term life insurance policy?

Selling a term life insurance policy for cash is not as common, but it may still be possible depending on your policy. Many term life insurance policies have a convertibility rider, sometimes at an additional cost. This is an attachment to your policy that would allow you to convert your policy to a permanent form of insurance upon the expiration of the policy.

 

A term policy, as it sounds, is purchased for a specific period (the term). This term is usually between five and forty years. If you’ve had your term policy for many years and aren’t sure if you have a convertibility rider, you can contact your life insurance company or agent for guidance.

So, before you worry and think, “I can’t sell my life insurance policy because it’s a term policy,” be sure you speak with your agent or a life settlement advisor. He or she can examine your individual needs and determine what can be done to help you sell your policy.

Once I decide, how do I sell my life insurance policy?

Once you have researched all your options and have decided that you want to sell your life insurance policy for cash, there are some steps you will need to follow.

 

You may also be interested in using a Life Settlement Calculator. This is a tool you can access online where you enter basic information such as your age, your policy value, et cetera, and receive an estimate on what your policy may be worth in a settlement. While not exact, this may give you a good idea of how much money you could receive. 

 

Once you have used the Life Settlement Calculator and are ready to proceed, the process looks like this:

 

  • Application: in this first step you will fill out the application. You will need to provide basic demographic information about yourself and your health and basic information about your policy. You will also sign medical release forms and other forms to release your insurance information.

  • Documentation: During this step, the company will use the information you provided to gather all the necessary information related to you and your policy.

  • Review: During this step, the company will use all the information you provided and what they have gathered to review your policy and see how much it is worth. They may also decide that they are not interested in purchasing the policy.

  • Offer: if the company decides they want to purchase your policy you will be sent an offer. The offer may or may not be negotiable. If you decide you don’t want to accept the offer you may walk away from the sale.

  • Closing package: during this time all the necessary documentation to finalize the sale of your policy will be completed. It will likely need to be signed by you and several other parties. Once this step is complete you should get a timeline on when you will receive your payout.

  • Funds transfer: this is the final step in the process and involves your money being transferred to you. You may receive your payment in one lump sum or several payments sent over a predetermined period.

As you can see there are several steps in the life settlement process. You can expect the process to take several weeks to several months. Ten weeks is a good average to plan on. Once the process is in motion your broker (if you are using one) should be able to give you a better timeline of when you might expect to receive your payment.

 

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.   

Don’t lose your lifelong investment. Discover your policy’s value today.