If you’re like millions of other adults, you own a life insurance policy. Whether you purchased a permanent form of life insurance such as a whole life policy or a universal life policy, or a term life insurance policy, you likely have some form of coverage. Once we have a family of our own, we want to make sure they would be financially taken care of if something were to happen to us. As our dependents become financially independent, however, that life insurance policy may no longer be necessary. You may be aware of life settlement brokerage options in which you are able to sell your life insurance policy for cash, but you may have questions about selling a term life insurance policy for cash.
Selling a life insurance policy is an option many people turn to when they have decided they no longer need their policy. If you’re considering this option there are some things you need to be familiar with prior to moving ahead with the process.
Reasons for selling your life insurance policy for cash:
Whether you are considering selling a term life insurance policy or selling a permanent form of life insurance, there are many reasons to consider life settlement brokerage. These include:
- No longer needing a policy: when a person’s dependents become financially independent, they may start to feel like their policy is no longer needed and that the premium payments are an unnecessary expense.
- Needing money for medical expenses: healthcare expenses can add up quickly, especially if you’ve received a terminal diagnosis. Selling a policy can provide you with needed cash to pay for medical bills, home renovations to accommodate your changing healthcare needs, et cetera.
- Needing money to fund retirement: selling your life insurance policy can provide you with an influx of cash to help you navigate retirement. You may be able to pay off your home, purchase a new home, fund travel, or realize your other life goals.
Are there other options besides selling a policy?
If you have decided that you no longer need your life insurance policy, there are several options:
- Sell your policy for cash: you can choose to sell your policy for cash using one of the brokerage options described below.
- Allow the policy to lapse: you can choose to simply stop paying your premium payments and your policy will lapse. This option will not provide a payout but will simply allow you to no longer pay premiums.
- Surrender the policy for its accumulated cash value: if you own a permanent life insurance policy it may have built up a cash value as you paid premiums into it. You may be able to surrender your policy and receive a check for this cash value.
It is important to understand that if you choose any of these three options your policy will no longer provide death benefits to your beneficiaries. They will not receive a payout upon your death. Selling your policy with a brokerage option may provide you with the highest cash payout. The amount of money you receive is usually less than the policy’s face value but can be up to four times as much as you would receive if you surrendered the policy for its accumulated cash value.
Available options if you decide to sell your policy:
The two life settlements solutions for selling your life insurance policy are traditional life settlement and viatical settlement. While both options share some similarities, they do have some notable differences you need to be aware of:
- Traditional life settlement: also called senior life settlements, this option generally involves the sale of a life insurance policy with a value of $100,000 or more. You usually need to be aged sixty-five years or older and have a life expectancy of around fifteen years.
- Viatical settlement: this option is specifically for those who have been diagnosed with a terminal illness. The age limit is more flexible, but you need to have a life expectancy of around two years, or sometimes as many as four years.
Each of these options have their pros and cons. You will want to research each option and carefully consider your own current life and health situation to make the decision that is best for you. It is important to note that while viatical settlements are not typically taxed, traditional life settlements are subject to taxation, so you will want to speak with a trusted tax advisor to help you understand these implications. Both of these options generally involve the sale of permanent forms of life insurance such as a whole life or universal life policy, but selling a term life insurance policy for cash is possible.
Selling a term life insurance policy:
While life settlement brokerage generally involves the sale of a permanent form of life insurance, selling a term life insurance policy for cash is possible. A term life insurance policy is, as the name implies, written for a specific time period or term. These terms are generally between five and forty years. Many life insurance carriers offer convertibility riders that you can include with your policy. This is an attachment to your policy, sometimes for an additional cost, that allows you to convert your term life insurance to a permanent life insurance policy at the end of the term. If you are unsure if you have a convertibility rider, you can contact your life insurance agent or company for guidance.
Many life insurance companies offer conversion riders on their policies, but there may be some restrictions. For example, some companies will only convert a policy up to age 75. You will want to review your policy closely to make sure you meet the requirements.
Even if you do meet the requirements, you will still want to examine your situation carefully to make sure that converting your policy and selling it is your best option. You will need to make sure your policy qualifies for a sale.
You may also want to see if your policy offers any other riders that could help you in your current situation, such as an accelerated death benefits rider or a long-term care rider. Each of these may be able to provide you with cash to help cover expenses without selling your policy.
If you have decided that selling a term life insurance policy for cash is your best option and you have determined that your policy has a convertibility rider (sometimes known as a conversion rider) your life insurance agent can guide you through the process to obtain a form of permanent life insurance. Once you have converted your term policy you can proceed with the sale of your policy.
How does the brokerage process work?
You may choose to sell your policy on your own or to hire a life settlement broker to help you through the process. There are pros and cons to each of these options:
- Selling on your own: you will not have the guidance of a broker if you need help along the way. You may also receive a lower payout if you do not receive several offers on your policy. However, you will receive the full payout from the sale of your policy if you do not use a broker as he or she will get a commission on your sale.
- Using a broker: if you choose to use a life settlement broker to sell your policy you will have guidance throughout the process. He or she may be able to get your policy into a bidding war of sorts which could lead to a higher offer for you. As mentioned above, however, they will receive a commission for their part of the sale. You do not pay this upfront, but it is deducted from the payout prior to you receiving a check. This is usually a percentage of the sale and you will want to know how much it will be so you can plan for it.
Once you have decided whether to use a broker or not, you can move forward with the sale of your policy. You might want to use a tool such as an online life settlement calculator prior to getting started. This simple tool allows you to input basic information about yourself and your insurance policy. It will then estimate how much your policy might be worth in a sale. It is not exact and your actual payout will vary, but it is a good starting point.
There are several steps for selling your policy. The entire process usually takes several weeks to several months, but ten weeks is a good expectation. The steps are as follows:
- Application: this is the first step during which you will fill out an application. You will provide basic information about yourself and your heath as well as your life insurance policy. You will also sign a medical records release form and a form to allow the release of your policy information.
- Documentation: during this step the company will use the application and release forms you filled out to gather the information they need.
- Review: during this step the company will use all the information they have gathered to determine what your policy is worth. They will make a decision on whether they want to move forward with the sale of your policy. They may also decide not to purchase your policy.
- Offer: this is when you will receive your offer. The offer may or may not be negotiable. You may also decline the offer and walk away from the sale at any time.
- Closing package: during this step all the final documentation for the sale of your policy will be signed by all pertinent parties. These documents vary by state. Once this step is completed you should be able to get a timeline on your payout.
- Funds transfer: this is when you receive your payout. You may receive your payment in one lump sum or in several payments over a predetermined period of time.
Selling a term life insurance policy for cash- wrapping it up:
As with any other big financial decision you make in life, selling a term life insurance policy for cash should not be a decision you make lightly. You will need to carefully consider your current life situation and health as well as any future needs of your beneficiaries. Once you’re sure that selling is the best decision for you, you can move forward in the process with confidence. You may be able to receive a payout that can help provide you with the financial security you need during the final years of your life.
Questions and answers:
Is selling a term life insurance policy for cash possible?
Yes, with some considerations. If your term life insurance policy has a convertibility rider attached to it, you can convert it to a permanent form of life insurance and then proceed with the sale of your policy.
Is selling a term life insurance policy for cash (or other life insurance policy) legal and safe?
Yes. The sale of life brokerage process is legal and is regulated to protect both sellers and buyers. Each state has its own guidelines and brokers are bound by fiduciary responsibility to work in your best interests.
How much money can I receive?
This will vary based on your policy value, age, health, etc. You can use an online life settlement calculator to get an estimate. You can expect to receive less than your policy’s face value but more than its cash surrender value.
How long does the process take?
The brokerage process takes several weeks to several months. Ten weeks is a good estimate.
Can I use the funds however I see fit?
Yes. Your money is yours to spend how you see fit. You may choose to use it for medical expenses, home renovations, to fund retirement, or to realize your travel or other life goals.
Can I sell my policy on my own?
You definitely can. Selling on your own or using a broker is your choice. Each option comes with its own pros and cons, so you should research to decide which one will work best for you.