If you’re like many adults, you probably own a life insurance policy. Whether you purchased a term policy or a permanent form of life insurance, you likely have some form of life coverage to protect your family. Once we get married and start a family, we want to ensure that our dependents would be financially secure if anything were to happen to us. Life insurance can provide that security. But once our children are grown and financially independent, we may start to wonder if continuing to pay for a policy makes sense. Maybe you simply don’t need that coverage anymore. You may be thinking, “Can I sell my life insurance policy?”
The answer is yes, you can. Life settlement brokerage involves the sale of life insurance policies for cash. This option is worth considering if you have a life insurance policy you no longer need. There are several various options you might consider when you have decided a policy is no longer necessary, but selling your life insurance policy for cash might provide you with the highest payout.
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.
If I decide to sell my life insurance policy, what are the options?
There are two main types of life settlements solutions- traditional life settlement and viatical settlement. While each of these share similarities, they also have notable differences:
- Traditional life settlements: also called senior life settlements, these are commonly used in the sale of a life insurance policy. The general requirements are that you own a life insurance policy with a value of at least $100,000, are aged sixty-five years or older, and have a life expectancy of around fifteen years or less.
- Viatical settlements: this option is reserved for people that have received a terminal diagnosis. The age requirement is more flexible, but life expectancy needs to be around two years, sometimes up to four years.
Both of these options usually require that your policy be a permanent form of life insurance and each can provide you with a substantial cash payout. You will need to evaluate your current life situation and health to decide which one is best for you. Selling a life insurance policy is not a decision to make lightly. You want to make sure you fully understand the implications. Some things to consider include:
- Your beneficiaries will no longer receive a payout: the buyer of your policy assumes all responsibility for the policy, including payment of premiums. Upon your death, he or she (or beneficiaries they have named) will receive the death benefits.
- If you use a broker, he or she will receive a commission: you can choose to sell your policy on your own or to use a life settlement broker. If you use a broker, you will have guidance throughout the process, but he or she will receive a commission. This is usually a percentage of the sale and will be deducted from the payout prior to you receiving your check. You will want to know how much this will be so you can plan for it.
- Tax implications: a viatical settlement is not typically taxed, but a traditional life settlement is subject to taxation. Talking with a trusted tax advisor can help you understand the tax implications and make the best decision.
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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 of time (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 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 in several payments sent over a predetermined period of time.
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.
Putting it all together:
If you have been tossing around the thought, “Can I sell my life insurance policy?” you have probably decided that you no longer need your current policy. Selling your policy is a big personal decision, and like any other big decision you should speak with your family or financial advisors as necessary to ensure you make the right choices. A life settlement solution can help you find financial stability during the final years of your life or help you realize your retirement goals.
Questions and answers:
Can I sell my life insurance policy?
Yes, you can. Selling a life insurance policy that you no longer need can be a good way to provide you with a cash payout to help fund your retirement or medical care expenses.
Is it legal to sell my life insurance policy?
Yes. The sale of life insurance policies is legal and regulated. States have their own laws and guidelines to protect both buyers and sellers.
How long will it take to sell my life insurance policy?
The life settlement process can take several weeks to several months, with ten weeks being a good average. Your broker can provide you with a more definitive timeline as the sale moves forward.
Do I have to be terminally ill to sell my life insurance policy?
No, you do not. A viatical settlement requires that the seller (the insured) have received a terminal diagnosis and have a life expectancy of usually no more than four years. A traditional life settlement does not have this requirement.
Can I sell a term life insurance policy?
Yes, in many cases. Many term life insurance policies have convertibility riders that allow you to convert your term policy to a permanent form of life insurance which you can then sell. Your agent can help guide through this process.
Is there a way to know how much money I may be able to get if I sell my life insurance policy?
You can use a Life Settlement Calculator tool. This will allow you to enter your age, policy value, et cetera and can provide you with an estimate on what your life insurance policy might be worth in a settlement option.
Will I have to spend the payout from the sale of my policy on healthcare expenses?
No. Your money is yours to spend in any way you see fit. You can use it for healthcare related expenses, paying off or purchasing a home, traveling, home renovations, or anything else you need.
Do I have to use a broker?
No, you do not. You can sell your policy on your own or with the help of a broker. Each of these has its own pros and cons so be sure to do your research so you know what to expect.
Don’t lose your lifelong investment. Discover your policy’s value today.