Life insurance policies provide peace of mind from knowing that loved ones will be financially provided for if you were to pass. However, sometimes our goals and needs change.
Whether you find yourself struggling to pay life insurance premiums, your beneficiaries no longer need your death benefit, or you need more money than your cash value can provide, there are times when it may make sense to sell your life insurance policy.
Selling your life insurance: is it right for you?
Selling your life policy: does your policy qualify?
Life insurance settlements: how to find a buyer
Can I sell my life insurance policy?
In many cases, you can sell your life insurance policy. Buyers are generally more interested in purchasing permanent life insurance because, unlike term life policies, permanent insurance lasts the insured’s lifetime. Many permanent policies also build cash value, making it worth more. However, sometimes life insurance policy buyers will also purchase term life policies. Buyers will look at the policy’s terms, the insured’s health condition, and age to determine if it makes financial sense for them to purchase your policy.
However, the bigger question is should you sell your life insurance policy.
While selling life insurance policy ownership is often possible, it is generally not advisable. A life insurance settlement will be significantly less than the full value of your death benefit. And if you sell your life policy, your beneficiaries will no longer have access to that death benefit.
Still, there are times when selling your policy may make sense. Here are some questions to help you determine if selling is smart option for you:
- Do you need immediate funds? Instead of canceling your policy, you may be able to borrow against or withdraw funds from your cash value, which would give you funds without losing your death benefit.
- Are you struggling to pay your policy’s premiums? Talk with your life insurance agent. Sometimes, you can use the cash value of your permanent insurance policy to pay your premiums, or you may want to use the policy’s value to purchase a less expensive policy.
- Do you have expenses due to a chronic or terminal illness? Your policy may have an accelerated death benefit rider, allowing you to use your death benefit toward your medical bills without canceling the policy.
- Do your beneficiaries still need your death benefit? Life insurance policies are often taken out when children are young, and your family needs financial security if something happens to you. As your family grows older, they may no longer need a significant death benefit if you were to pass. In this case, you might consider selling your policy.
- Do your beneficiaries need financial help now? If your loved ones need a large amount of cash quickly, selling your policy may be a way. However, suppose your policy has an untouched cash value. In that case, that is generally a better way to access funds, as it also leaves the policy's death benefits in place for your beneficiaries.
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How can I sell my life insurance policy?
While you may be able to sell your life insurance policy to an individual, many will go through a life insurance settlement broker. The government strongly regulates life insurance settlement companies; a reputable broker will know which companies to use.
These brokers let life settlement companies know you want to sell your policy, and interested companies bid on the policy. Once all the bids are in, the broker will let you know the highest bid.
The company that buys your policy becomes the beneficiary, meaning they will receive the death benefit when you die.
While each settlement company has its own policies, some general things will be looked at to determine if your policy qualifies for a settlement, including the following:
- What is the policy’s value? Settlement companies generally have a minimum face value that the policy must meet.
- What type of policy is it? Settlement companies prefer permanent policies that won’t expire over term life policies but will sometimes consider term life depending on the circumstances.
- What is your life expectancy? Settlement companies are generally more interested in people with shorter life expectancies.
- Is the policy transferable? The policy must allow for transferring of ownership to the buyer.
- Can it be converted to permanent life if it's a term policy? Some term life policies can be converted into a permanent policy without requiring a new medical examination, which may be preferable because a permanent policy does not expire.
Additionally, the settlement company will review and verify the following:
- A copy of your policy contract
- Your medical records, and potentially talk to your health care providers
- Your premiums and coverages, including expected rate increases
Before selling your life policy
In some cases, selling your life insurance policy may be a smart option — but not always. It's important to carefully weigh the pros and cons.
Do your research before taking the radical step of selling your life insurance policy. Talk to your life insurance agent to see what other options are available to meet your changing needs. If you decide to sell your policy, work with a reputable broker to get the best offer.
How much can I get for my life insurance policy?
In general, if you can find a buyer for your policy, you should only expect to get between 10 and 30% of the death benefit. That’s one reason selling your life insurance policy is generally not recommended.
How do I find someone to buy my life policy?
The easiest way to find a reputable buyer is through a life insurance settlement broker. These brokers will put your life policy out for bid and help you find the highest price for your policy.
Can I sell my term life insurance policy?
In some instances, yes. While buyers are typically more interested in purchasing permanent life insurance policies, sometimes they will make life insurance settlements on term policies.
While you may be able to sell your life insurance policy, it is not always the only or best option. Your agent may be able to provide you with better alternatives.
Not every policy - or every policyholder - can be sold. The type and amount of the policy, your age, and your health are among factors that life settlement companies consider.
Working with a reputable life settlement broker can help you get the best offer for your policy.
- Financial Industry Regulation Agency (FINRA). What you should know about life settlements.
- Life Insurance Law. Life insurance laws by state.
- National Association of Insurance Commissioners (NAIC). Understanding life settlements: selling your life insurance policy.