Can I sell my life insurance policy for cash?
Can you really sell your life insurance policy for cash?
Yes, and before you cancel your life insurance policy, you should see if you can sell it. Selling your life insurance policy for cash will not only help you eliminate the cost of the policies premiums but will also give you access to a lump sum of money which you can use any way you choose.
For those who are age 65 and over and have a life insurance policy that is no longer wanted or needed – or that is getting more difficult to afford – there is a solution available that can not just help to lessen expenses, but that can also conceivably net a significant amount of cash in your pocket. These are known as life settlements.
When to Consider Selling Your Life Insurance Policy
Today, policyholders who no longer need or want their current life insurance coverage to have options other than just simply cashing out or canceling their plan. How do you know if a life settlement company would be interested in buying your policy? Here are some principles on who may be a good candidate.
Who may be good candidates for a life settlement?
- Someone age 65 or older
- Under age 65, but have health issues that could reduce your life expectancy
- Have a terminal illness and are younger than 65
- Have a death benefit in your current policy of $250,000 or more
- Have a permanent policy (whole or universal life)
- Have some cash value in the policy
How a Life Settlement Works.
How do you sell a life insurance policy? A life settlement involves selling a life insurance policy to a third party in return for a lump sum of cash. This is not the same thing as surrendering or canceling the policy through the issuing insurance company.
Instead, a life settlement involves selling the policy to an investor who purchases it for a certain percentage of its death benefit proceeds – and because the death benefit is typically much higher than a policy’s cash surrender value, the seller of the policy can oftentimes net much more than they would by just cashing out the policy through the insurer.
Once purchased, the investor will continue to pay the policy’s premiums – and will also become the beneficiary. Therefore, when the insured passes away, the death benefit proceeds are paid out to the investor – which is where the investor’s return is made.
While some policyholders may not feel fully comfortable with the idea behind life settlements, these transactions have proven that they can be a win-win situation for many – especially as they can often net out substantially more than one can get by surrendering the policy.
According to a 2013 study by the London Business School, the average life settlement was four times the amount of the surrender value.1 This can be quite significant for many policyholders.
For instance, consider the difference between a $25,000 cash surrender versus $100,000 in life settlement proceeds. Although it is important to note that you will owe income tax on the amount that is over and above the amount of the premiums that you paid into the policy.
How the value is Determined When Selling a Policy.
The most significant factors that determine how much value is in your policy will be you.
You see life insurance buyers want just as much value as you do. You want to get you out of your premium payment and get cash in your pocket. A buyer wants to wants a good return on his investment in return for making that happen. Seeling you life insurance policy can be a win for all parties involved.
Advantages of Selling Your Life Insurance Policy.
There are a number of advantages to moving forward with a life settlement – the biggest of which comes from selling the policy to an investor as versus “cashing out” with the issuing insurance company.
These funds can be used for anything you choose – paying off debt, funding a long-term care need, paying health insurance or Medicare deductibles, or even taking a long-awaited vacation. The choice is yours.
Certainly, another key advantage comes in no longer having to pay the premium on a policy that is not needed anymore. This can free up money in the monthly budget for other living expenses.
How to Sell a Term Life Policy.
It may be possible to sell a term life insurance policy, but you would have to be the right candidate. Someone who could possibly be the right candidate would be someone who may be facing serious health challenges or someone that has been diagnosed with a terminal illness, they have an inforce term life insurance policy and it must have a conversion option available.
The reason you would need a conversion option available if you’re trying to sell a term life insurance policy is so the life settlement provider who buys the policy can make sure the policy does not lapse leaving it worthless to them.
What if your term life policy does not have a conversion option?
If you own a term life insurance policy that you are trying to sell and the conversion period has passed then the policy will have to have an annual renewable option. You will have to get a copy up the schedule of upcoming premiums due in order to know if the policy has any value.
Have additional questions? We can help. There are several variables that can make a policy a good fit for a life settlement transaction. If you’d like more information contact us.