Have you ever wondered, “can I sell my life insurance policy?” While you probably purchased life insurance with your future needs and those of your family in mind, life happens and sometimes your circumstances change.
The life insurance policy you’ve got may not be the best option for you anymore.
Whatever the reason, if you have reached a point in your life where the policy you own no longer adequately provides for your needs, you might be considering selling it for cash through life settlement brokerage.
There are multiple options if you choose to go this route, but with some research and help from life settlement advisors you will be able to make the decision that is best for you and your family.
Understanding your policy:
Not all life insurance policies are created equal. There are two main types of life insurance and they are permanent life insurance and term life insurance.
Each offers different benefits and has its own set of pros and cons. Life settlement brokerage deals with both whole life and term life so it is important to have a basic understanding of both before moving forward with the settlement process.
Permanent life insurance:
- Whole life policy: this type of insurance offers consistent premiums, so you’ll pay one premium for the life of the policy. It also offers a guaranteed cash value accumulation. As long as the policy premiums are paid your beneficiaries will receive the benefits upon your death. This is a good option for people who need to make sure dependent children will be cared for and/or post-death expenses can be covered.
- Universal life policy: this type of policy can also be called adjustable life insurance due to the flexibility it allows. When you make a premium payment part of it is put into an investment account that accrues interest. Once there is money in your account you have the option to increase or reduce the death benefits. You can also pay your premiums at a time and in an amount of your choosing, with some limitations.
Both types of permanent life insurance give you the option to borrow against their cash value.
Term life insurance:
- Term life insurance is a temporary policy. You purchase it for a specified amount of time, or term. Coverage is guaranteed through the duration of the term as long as the premium requirements are met. Term insurance does not build a cash value and you cannot borrow against it. Some term policies can be converted into whole life policies and are known as convertible term policies. While convertible term policies more often qualify for a settlement option, non-convertible policies will sometimes qualify as well.
Selling a term life insurance policy is not as common as selling a permanent policy, but both types can be used in settlement options.
Since requirements may vary, it is important to discuss any policies you might be considering selling with qualified life settlement advisors to help you make the best decision.
Reasons to consider life settlement brokerage options:
Life settlement brokerage is an option you may consider for many different reasons.
Each policy owner must consider their needs and their family’s needs and make the decision they feel is best. Some of the common reasons for choosing a life settlement option include:
- No longer needing the policy: an example of this would be that you purchased the policy when you had dependents and needed to ensure they would be provided for in the event of your death. If they are grown and financially independent, your old policy may not be necessary anymore.
- Wanting to use the benefits while you are still alive: if you sell your life insurance policy for cash you can use that money to cover living expenses. These transactions are often referred to as senior life settlements.
- Unforeseen health concerns: if you become ill and are facing long-term medical care you might also find yourself facing large medical bills not covered by health insurance. You can use the viatical settlement option to get the cash you need in the event of a terminal illness.
The facts about selling term life insurance policies for cash:
While it is true that permanent life insurance policies are the most common policies used in life settlement brokerage, term life policies may qualify as well.
Working with a knowledgeable life settlement broker can help you feel confident and informed when selling a term life insurance policy for cash.
People aged sixty-five or older who own term life policies with a face value of more than $100,000 can usually sell their policy for cash. It might be possible to convert your term policy to a whole life policy depending on how the policy was initially written. You can check the original policy paperwork or confer with the issuing agent or agency.
Exploring the options:
When considering life settlement brokerage, it is important to understand the different types of settlement options. There are two primary settlement options and each serves a different purpose.
- Traditional/senior life settlement: in this option you sell your policy to a third party with the help of a life settlement advisor. The third party will then become responsible for future premiums on the policy and you will receive a cash amount. This is usually less than the face value of the policy but more than the cash surrender value.
- Viatical settlement: this option is reserved for people who have become terminally ill and need money to help them through the remaining months or years of their life. To utilize this option usually you will need to have a life expectancy of less than two years. The policy is sold to a third party, the viatical settlement provider, and you will receive a lump sum of cash to be used for medical expenses, home health care, et cetera.
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Life settlement option in detail:
When you utilize this life settlement brokerage option, you sell your life insurance policy to a third party and that person becomes the new policyholder.
This means they assume responsibility for the premiums going forward and beneficiaries of their choosing will receive the death benefits. It is important to understand that your beneficiaries will no longer receive any funds from the policy.
If you choose this option you can expect it to take three to four months. There are several steps to follow, and they include:
- Filling out an application: this will include providing your basic personal information and signing some medical information release forms and providing insurance policy information. These things help determine the amount of cash you will receive.
- Documentation: the settlement company you are working with will use the forms you provided to gather the information they need.
- Review: it is during this step that the company will use all the information you have provided and that they have collected to determine if they wish to purchase your policy or not.
- Offer: if the company decides they want to purchase your policy they will notify you with an offer. It might be negotiable and you reserve the right to decline the offer.
- Closing package: this is when all the final documents will be reviewed and signed. The process differs in each state and several different parties may be required to sign.
- Funds transfer: this is when the money from the sale of your policy will be sent to you. This could be a one-time lump payment or you may receive several payments over a pre-determined period of time.
Several factors together determine how much a policy is worth. These include the life expectancy of the policyowner, the expected cost of future premiums, and the face value of the policy.
Any funds paid to you from the sale of your policy may be subject to taxation and you’ll need to consider this as you decide on a life settlement brokerage option.
Most states require that a policy be in force for a certain time period before it can be sold. On average this time period is two years but it varies in each state.
Viatical settlement option in detail:
If you have been diagnosed with a terminal illness and your life expectancy is less than two years, this might be the best life settlement brokerage option to help you see the greatest return on your policy and provide you with the needed cash for your remaining life.
In this option you will sell your policy to a buyer, also known as the viatical settlement provider, and you will receive a lump sum of cash. The buyer will receive the policy’s death benefits upon the seller’s death.
Viatical settlements often pay you more than traditional life settlements will. They also do not require that your policy be a whole life policy. Viatical settlement payouts are not federally taxed, so you won’t have to worry as much about the implications involved with taxation.
As with a traditional life settlement, most states require that a policy be in force for two or more years before it can be sold. Usually, the face value of the policy will need to be $200,000 or more.
Three main factors go into determining the amount of money you will receive in a viatical settlement. They are the life expectancy of the insured party, the type of policy and its size, and the expected costs of future premiums.
You will work with an advisor during the life settlement brokerage process and they will ensure you understand everything that is happening.
It is important to understand that if you have outstanding debts, creditors can take some or all of your payout received from a viatical settlement. If you worry this could apply to you, you are encouraged to also speak with your financial advisor to make a plan.
Summing it up:
Life settlement solutions can be a great way for people, especially seniors and those with a terminal illness, to access the benefits of their life insurance policies while still living. There is a lot you need to be aware of when making a decision, but if you work with qualified and knowledgeable life settlement advisors, the life settlement brokerage process does not need to be daunting.
Whether you choose a life settlement/senior life settlement or a viatical settlement, these are great ways to help make your money work for you.
Frequently asked questions:
The life settlement brokerage process may seem overwhelming, but it is a fairly straightforward process and if by enlisting a broker you ensure that will have help and guidance every step of the way. Following are some commonly asked questions about the process and their answers.
Can I convert a term life policy to whole life before I sell it?
Yes. If your term life insurance policy has a conversion rider, you can absolutely convert it to a whole life policy and then utilize life settlement brokerage options.
Are life settlement and viatical options legal and/or regulated?
Yes. Contrary to some people’s beliefs, these transactions are legal and regulated. Every state in the US has its own Department of Insurance, and nearly every state has laws specific to life settlements and viatical settlements.
Is a life settlement taxed?
The short answer is yes. During the life settlement brokerage process you will want to work with your advisor to help you fully understand any tax implications of the option you are considering.
Is a viatical settlement taxed?
Usually not. Proceeds from this option are considered an advance of death benefits and not taxable. However, there can be exceptions. So you will want to work with life settlement advisors to avoid any tax surprises.
How long is the life settlement brokerage process?
The entire process is broken into steps with each one taking a different amount of time, but the time from application to funds transfer is usually around four months.
Do you have to be sick to sell your life insurance policy?
No. The viatical settlement option stipulates that the seller must be terminally ill, but the traditional life settlement option does not.
Does the money I receive from my settlement need to be spent in a specific way?
No. You may use the money however you see fit. You can pay off debts, pay off your home, fund healthcare needs, et cetera.
Don’t lose your lifelong investment. Discover your policy’s value today.