If you’re like millions of other adults, you own a life insurance policy. As we grow up and start a family, we know we need to have a way to ensure that our family will be provided for if something were to happen to us. The solution? A life insurance policy. But what about once our children have grown up and become financially independent? Do we still need that life insurance policy we purchased so many years ago? You might be considering whether it still makes sense to pay those premiums. You do have some options, and you could get some money from your policy while you’re still living. What is cash value life insurance?
Why would I get rid of my life insurance policy?
Many people consider selling a life insurance policy for a variety of reasons. The reason will vary from one person to the next but could include:
- No longer needing the policy: when the dependents you purchased the policy to provide for are financially independent, you may see no reason to keep paying for a policy.
- Needing to get out from under the premiums: if paying the premiums on your policy has become a struggle, you may simply wish to relieve yourself of that obligation.
- Needing to fund retirement: the funds you can receive from selling your life insurance policy for cash can help you fund retirement or other life goals.
- You have become ill: selling your life insurance policy now can help you cover health insurance or medical costs while you are still living.
- Any other financial need: since the money from the sale is yours to spend as you see fit, the cash value of life insurance can help you with any financial needs you may have.
Once you have decided that you no longer need your life insurance policy, you might be wondering, “What is cash value life insurance and what are my options?” You have several:
- Allow the policy to lapse: by simply ceasing payment on your premiums, your policy will lapse. You will not receive any cash payout with this option and your policy will terminate.
- Surrender your policy for its accumulated cash value: this might be an option if you own a permanent form of life insurance that has accumulated a cash value as you paid premiums into it. You may be able to receive a check for its cash value.
- Take out a loan against your policy: this is an option if you want to keep the policy in force but need money from the policy. You will need to repay this loan, and anything outstanding will be deducted from the benefits upon your death.
- Accelerated death benefits: this is an option with some policies. It allows you to access a portion of your death benefits while you are still living if you meet certain requirements, such as having a terminal diagnosis.
- Sell your life insurance policy: through life settlement brokerage you can sell your policy for cash. This option will usually yield the highest payout for you, generally less than the policy’s face value (death benefits) but up to four times as much as the surrender option.
So, what is cash value life insurance? We’ll help you understand the ins and outs so you can make the best decision for your current life situation.
Life settlements solutions:
There are two different options when you decide to sell your life insurance policy for cash. Each has its own requirements, so it is important to understand how both work so you can make the best decision for your needs.
- Traditional life settlement option: also called senior life settlements, this is the option most often utilized in life settlement brokerage. Generally, your policy should be a permanent form of life insurance with a face value of $100,000 or more. You need to be aged sixty-five years or older and have a life expectancy of around fifteen years.
- Viatical settlement option: this option is reserved for those who have received a terminal diagnosis. While more flexible with age, life expectancy usually needs to be around two years, sometimes as many as four years. The buyer in this transaction is known as the viatical settlement provider.
Each of these options will provide you with a cash payout upon the sale of your policy. It is important to understand all the implications of selling your life insurance policy for cash, including:
- Potential tax implications: while a viatical settlement is not typically taxed, traditional or senior life settlements are subject to taxation, so you will want to speak with a trusted tax advisor to understand how this may affect you.
- Your beneficiaries no longer receive any benefits: upon the sale of your policy, the buyer assumes all responsibility. They will pay the premium payments and they or beneficiaries of their choosing will be entitled to the benefits upon your death.
Don’t lose your lifelong investment. Discover your policy’s value today.
What about selling a term life insurance policy?
While life settlement brokerage generally involves the sale of a permanent form of life insurance such as a whole life or universal life policy, selling a term life insurance policy for cash is possible if the policy is convertible to permanent life insurance.
Term life insurance policies, as the name implies, are written for a specified period of time, or term. This is generally five to forty years. Many life insurance companies offer conversion (or convertibility) riders that you can add to your policy, sometimes for an additional cost. When your term ends you can convert the policy to a permanent form of life insurance. The policy can then be sold if the other criteria listed above are met.
If you are not sure if your term life insurance policy has a convertibility rider attached, you can contact your life insurance agent or company. They will be able to work with you to determine the next steps.
How does the process work?
Now that we’ve explored the question, “what is cash value life insurance,” you might be wondering how to start the process of selling your life insurance policy. You might want to use a life settlement calculator prior to starting the process. This online tool will allow you to enter some basic information about yourself and your policy and it can provide you with an estimate of what your policy may be worth. It is important to know that this is just an estimate and not a guarantee of how much money you may receive.
Once you have decided which life settlements solutions option is best for you, you will need to decide if you want to sell your policy on your own or go through a life settlement broker. Each option has its pros and cons:
- Selling your policy with the help of a broker: this option will provide you with guidance throughout the entire process. You may be able to receive a higher payout if your broker is able to get your policy into a bidding war of sorts. A broker will receive a commission for his or her part of the sale. This is usually a percentage of the sale and will be deducted prior to you receiving your check. You will want to know how much this is so you can plan for it.
- Selling your policy on your own: this option will allow you to keep your entire payout since there is no broker’s commission to be deducted. However, if you feel lost or overwhelmed during the process you won’t have the broker’s guidance. You also may receive a lower payout if there are not multiple bids on your policy,
Once you have decided which option you will use and whether to use a broker, you are ready to begin the process of selling your policy. Each state has its own regulations to protect both buyers and sellers, and the process is entirely legal. Selling a policy that you no longer want or need is an effective way to gain cash value from life insurance while you are still living.
Steps involved in the brokerage process:
What is cash value life insurance and what is the process? We have answered the first part of that question; let’s dive into the second.
- Application: in this first step of the process, you will fill out an application. It will include basic information about yourself and your life insurance policy. You will also fill out a medical release form to allow your medical records to be accessed as well as a form allowing your insurance policy information to be accessed.
- Documentation: during this step the company will use the application and release forms you filled out to gather the information they need to make a decision
- 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.
You can expect the process of selling your policy to take several weeks to several months. Ten weeks is a good average.
What is cash value life insurance? Wrapping it up
We’ve answered the question, “what is cash value life insurance.” Like any other major financial decision you make in life, you need to research life settlement brokerage and carefully consider your current situation to make sure you choose the option best for you. While you can find cash value in life insurance through surrendering the policy, policy loans, and other means, selling your policy for cash almost always provides the highest payout. Whether you decide to sell your policy on your own or use a broker, you can feel confident in knowing where to find cash value in your life insurance policy.
Questions and answers:
What is cash value life insurance?
Cash value life insurance refers to getting cash from your life insurance policy while you are still living. Of the options available to you, selling your policy will likely provide you with the highest cash payout.
Do I have to be terminally ill to sell my life insurance policy?
No. Viatical settlements require the insured to have a terminal diagnosis, but traditional life settlements do not.
How long does it take to sell my policy?
The process of selling your policy will take several weeks to several months. A good average to expect is around ten weeks.
Can I sell my term life insurance policy for cash?
It is possible to sell a term life insurance policy for cash if the policy can be converted to a permanent form of life insurance such as whole life or universal life.
How much money will I get from selling my policy?
Generally, you will receive less than the policy’s face value but up to four times more than if you surrendered the policy for its accumulated cash value. You can use life settlement calculator to help you gauge what your policy is worth.
Is selling a life insurance policy safe and legal?
Yes, it is legal and each state has its own laws to protect both sellers and buyers. It is a safe way to get the cash value from your life insurance.
Do I have to spend the money on health or medical costs?
No. They money is yours to spend as you see fit. You can use it to cover healthcare costs, fund retirement, purchase or pay off a home, et cetera.
Don’t lose your lifelong investment. Discover your policy’s value today.