Did you know you can sell your life insurance policy for cash? It’s an option that is often overlooked when planning for your financial future – but it’s definitely one you should consider.
The idea of selling a life insurance policy – whether through a life settlement or viatical – was once viewed with skepticism. But with current regulations, life settlements have become known as one of the safest financial transactions available for seniors. And it’s one that may prove highly beneficial.
Of course, senior life settlements are not for everyone. Determining whether to sell your policy is an important decision that should be made only after considering a number of factors. But for many seniors, life settlements and viaticals are excellent opportunities to receive an influx of cash that can provide additional support for retirement, cover unexpected expenses, and help you live your best life.
LIFE SETTLEMENTS AND VIATICALS EXPLAINED
How They Work
Life settlements and viaticals are transactions in which a policyowner sells their life insurance policy to a third party. The policyowner receives a lump sum of cash and is relieved of any further obligation to pay the policy premiums. In return, the purchaser is entitled to the death benefit (face value) of the policy upon the policyowner’s death. The average age of policyowners considering a life settlement or viatical is 78 years.
The terms “life settlement” and “viatical” are often used interchangeably, and there are a number of similarities between the two. But there are key differences to keep in mind:
- You can participate in a life settlement even if you are healthy. Viaticals, on the other hand, are intended for policyowners who are chronically ill (unable to perform two or more daily living activities for 90 days or more) or terminally ill (with a life expectancy of two years or less).
- Viaticals typically provide for a larger payout to the policyowner.
- You can sell any type of life insurance policy, including a term policy, as part of a viatical. Life settlements require a policy that provides permanent coverage, such as a whole life policy or term policy that can be converted to permanent coverage.
- Proceeds from a viatical are not subject to income taxes but life settlement proceeds may be.
If you are wondering whether selling your policy is the right choice for you, the first step in the process is to find a reputable and trustworthy life settlement brokerage or viatical settlement provider.
You will work with that brokerage or provider to determine your eligibility, the value of your policy, and the payout you will receive.
How You Can Qualify
As noted above, the average age of policyowners looking to sell their policy is 78. Policyowners that are at least 65 years old can qualify however, depending on factors such as their health and the value of their policy.
The value of a life insurance policy is a function of the ongoing cost of the policy (based on premium amounts and the expected length of time that a policy will remain in effect) and the face value of the policy (policy benefit). Generally, a policy must have a face value of at least $100,000 to be considered for a life settlement or viatical.
The average payout for life settlements or viaticals is 3 to 4 times the policy’s cash surrender value (the amount of money you can withdraw upon surrendering your policy and allowing it to lapse). This is one of the reasons why selling an insurance policy for cash is such an attractive choice for many seniors.
Don’t lose your lifelong investment. Discover your policy’s value today.
WHEN SELLING YOUR POLICY MAY BE THE RIGHT CHOICE
There are many factors to consider when determining whether to sell your life insurance policy and there are circumstances under which you may find that selling your policy for cash is the best choice for you. You should consider selling when:
Your policy no longer fits your needs. For example, when you took out the policy you likely did so to provide for your children if something were to happen to you. But if your children are now grown and financially independent, you may not need the policy anymore.
Your policy premiums are too high. If you can no longer comfortably afford your insurance premiums, selling your policy may be a great option. You will no longer have any obligation to pay premiums and will receive a cash payout in an amount at least 3 to 4 times more than the policy’s cash surrender value.
You need cash. Selling your policy will provide an influx of cash. You can use it to live on during retirement, invest it to increase the value of your investment assets and earnings, or simply sleep easier knowing you have extra money in the bank if you need it.
Your health has changed. If you are injured or diagnosed with a serious illness, you may find yourself facing new expenses that you never planned for. Selling your life insurance policy will provide you with funds to help cover those expenses without eating into your retirement savings.
POTENTIAL CONSEQUENCES TO CONSIDER
Before deciding to sell your life insurance policy, you should consider any potential negative consequences. For example, your family will not receive benefits under the policy if you sell it. This may not be an issue if your loved ones are financially independent, but it is something to keep in mind.
You should also consider whether there may be tax liabilities or any negative effect on your eligibility for Medicaid or other public assistance programs. Proceeds from a viatical are generally not subject to income taxes but life settlement proceeds may be. Consult your tax advisor to confirm whether this could be an issue for you.
Proceeds from a life settlement or viatical may be subject to claims by creditors. Consider whether you have any outstanding liabilities that may be of concern.
Finally, as with any financial transaction, there are certain transaction costs. Discuss these with your brokerage or settlement provider to be sure you have a clear understanding of any fees you may incur.
HOW YOU CAN BENEFIT FROM A LIFE SETTLEMENT OR VIATICAL
Whether to sell your insurance policy is an important decision with lasting consequences. It is important to consider all relevant factors, including any potential impact on your family, and carefully vet any provider you choose to work with.
That said, if you determine that selling your policy is the right move for you, it is one of the safest financial transactions available. You will receive an influx of cash to use however you see fit. Whether you want to invest it and put the proceeds toward your existing retirement funds, use it to improve your quality of life, or have a safety net to help guard against unanticipated expenses (medical or otherwise), selling your life insurance policy for cash is a great way to have more money at your fingertips and rid yourself of the burden of ongoing insurance premiums.
Talk to a trusted financial advisor to determine whether a life settlement or viatical is right for you and how you can start reaping the benefits today.
FREQUENTLY ASKED QUESTIONS
How do I sell my life insurance policy?
The first step is to find a reputable settlement provider or broker, who will determine your eligibility and the value of your policy. Make sure they are licensed and transparent with you regarding the fees associated with the transaction, including any commissions to be paid.
How much will I get paid if I sell my life insurance policy?
The value of your policy will depend on its cost (premium amount and the amount of time the policy is expected to be in effect (i.e., your life expectancy) and the policy amount. Generally, you can expect a payout of at least three- to four- times the cash value of the policy.
Do I have to pay taxes on proceeds from the sale of my life insurance policy?
It depends. If you participate in a viatical, the proceeds will not be taxed. The proceeds from a life settlement bay be taxed, however, depending on the amount by which the proceeds exceed the tax basis (amount of premiums paid less any withdrawals or dividends) of the policy.
Can I sell a term life insurance policy?
Term policies that can be converted to permanent coverage may be sold as part of a life settlement or viatical. If you are looking at a viatical, a non-convertible term policy may also be sold.
How quickly will I get paid if I sell my life insurance policy?
It generally takes 90 – 120 days to fully process a life settlement or viatical. The time it takes will vary depending on how quickly your provider is able to obtain any required information, so be sure to respond quickly to any requests for information or documents.
Don’t lose your lifelong investment. Discover your policy’s value today.