(10 minute read)
Selling a life insurance policy that you no longer want, need, or can afford to pay the premiums on isn’t a decision to take lightly. That being said, pursuing a life settlement—rather than continuing to pay the premiums on an unnecessary-seeming policy—provides several benefits for those who meet the criteria. This brings up a few key questions, which we’ll answer over the course of this very article, including:
- What does it mean to sell my life insurance policy for cash?
- What are the pros and cons of selling a life insurance policy for cash?
- Who qualifies for a life settlement, and who buys life insurance policies?
- How do you find the best companies that buy life insurance policies?
That’s a lot to cover, but we’ll take it one element at a time. First, let’s look at what exactly it means to sell a life insurance policy and the basics of how life settlements work.
Can I Sell My Life Insurance Policy for Cash?
Yes; if you meet the basic eligibility requirements, you can often recoup cash from an unwanted or unneeded life insurance policy. This is what’s known as a life settlement: a policyholder selling their policy to an investor, typically with the help of a life settlement broker. Once the investor buys the policy, they take over the monthly premiums and the policyholder gets a lump sum payout that’s higher than the surrender value.
Can I Sell My Term Life Insurance Policy for Cash?
Yes, there are plenty of companies that buy term life insurance policies, but the policy must have a convertibility option to quality for a life settlement. Once an offer has been made and accepted, it will be converted into a whole life or universal life insurance policy.
How Does It Work When You Sell Your Life Insurance Policy?
Selling an unwanted or unneeded policy is probably easier than you think! Here’s how it works, in three simple steps:
Step 1: See If You’re Eligible
While not every life insurance policy is eligible for a life settlement, plenty are (we’ll cover eligibility shortly). Even though the eligibility criteria won’t change much—if any—between different life settlement providers, it never hurts to consider your options as you search for the best company to sell your life insurance policy to.
- Does My Policy Qualify? You can quickly check your eligibility using this life settlement calculator, or by submitting your case to Life Settlement Advisors.
Step 2: Receive Offers
Checking your life settlement eligibility is the easy part. Once you’ve determined eligibility, it’s time to find a buyer for your policy. For most people, this isn’t a thrilling or easy prospect. That’s where life settlement brokers—like those at Life Settlement Advisors—make a real difference. After collecting your details, a broker will put your policy on the market, evaluate offers, and find you the best cash offer possible.
- What Company Will Buy My Life Insurance Policy? Not all life settlement brokers are created equally. When evaluating the best life settlement companies, look for those with vast experience and a reputation for providing sound financial advice—companies like Life Settlement Advisors.
Step 3: Collect Your Payout
Once a deal has been brokered, you’re ready to get paid! At this point, you’re officially off the hook for any future premiums (which the policy buyer takes over). The buyer also becomes the new recipient for the policy’s death benefit; in exchange, the policyholder receives a cash payout, one greater than its surrender value.
- How Much Can You Sell a $100,000 Life Insurance Policy For? A good rule of thumb for ballparking a life settlement is to expect around 20% of the policy’s face—meaning a $100,000 policy would net you $20,000. To put that $20,000 into context, a life settlement’s value is typically 4 to 11 times what you would receive by simply surrendering the policy or letting it lapse. (Applying that math, the same policy’s surrender value would only be between $1,000 and $5,000.)
Why Would Someone Sell Their Life Insurance Policy?
There are a few different scenarios in which selling an unwanted or unneeded life insurance policy makes sense for policyholders—especially, as Forbes notes, “if your need for cash is greater than your need for providing a life insurance payout to your current beneficiaries.”
Some people sell their policy because they simply can’t afford to keep paying the premiums, but that’s not the only reason why a life settlement might appeal to them.
A life settlement provides the financial flexibility to cover large, unexpected expenses, like medical costs or long-term care. For other life settlement candidates, it’s less about necessity and more about making the most of their retirement years. A life settlement provides a quick influx of funds that opens up the possibility of traveling and making new memories with family.
Pursuing a life settlement doesn’t have to be an all-or-nothing proposition, either. In many cases, you can sell just a portion of your policy, enabling you to gain some financial flexibility while preserving value for your beneficiaries. If you’re having trouble deciding whether a life settlement is right for you, reach out today.
What Are the Pros and Cons of Selling a Life Insurance Policy?
Like any significant financial decision, you’ll want to consider the pros and cons of selling your unwanted policy before going through the life settlement process.
The biggest “pro” of a life settlement is the ability to transform unwanted premiums into a cash payout—one much larger than the policy’s surrender value. This cash payout provides financial flexibility and maximizes the value of what would otherwise wind up a lapsed policy (with very little value, comparatively).
A life settlement is a rare win-win, wherein both the policyholder/seller and the life settlement provider stand to benefit. The policyholder recoups value from their policy, and the company buying the policy ultimately receives the policy’s death benefit.
How Much Can I Sell My Life Insurance Policy For?
Selling a life insurance policy rather than letting it lapse is always a smart idea, since the value of a life settlement always exceeds a policy’s surrender value. Recent studies show the average surrender value of a policy to be roughly $460 for every $100,000 in value. A life settlement, on the other hand, will typically pay out at least $20,000 for every $100,000 in value.
How to Find out How Much a Life Insurance Policy Is Worth: Three Methods
There are three main ways to get an idea of what your life settlement might amount to:
- Research online. There’s plenty of information about life settlements across the internet. Our ultimate guide to selling a life insurance policy is a great starting point. You can also find great overviews and insights from sources like Forbes, NerdWallet, and Investopedia. Of course, it’s important to remember that not everything you find online has been fact-checked!
- Use a calculator. We don’t mean a literal, traditional calculator—instead, use a life settlement calculator to determine your eligibility and plot your next move.
- Talk to an expert. The best way to get individualized information and recommendations is talking to a trained professional—like our team at Life Settlement Advisors. If you’re ready to talk, it’s easy to request a consultation.
What Is the Downside of Selling Your Life Insurance Policy?
Compared with surrendering a policy or letting it lapse, a life settlement is virtually always going to be the better option. An exception would be if you pursued a life settlement for a quick influx of cash without fully thinking through the ramifications, like:
- Leaving your heirs without a death benefit. Arguably the biggest question for most policyholders considering a life settlement is whether its value outweighs the benefits of retaining the policy. To get the best of both worlds, some people decide to only sell a part of their existing policy.
- The time and energy to find a buyer. All too often, people are keeping policies they don’t want or need because they’re overwhelmed by the idea of searching for a buyer. That’s why life settlement brokers exist: to make it easier for you to make the best possible decision and to walk you through the entire process.
- Tax consequences. Any amount of money you receive in a life settlement that exceeds the amount that’s been paid in premiums over the life of the policy. For example, let’s say you’ve paid around $20,000 in premiums and then receive a $30,000 life settlement. You’ll be on the hook to pay taxes on the difference in these values—in other words, you’ll pay taxes on $10,000 as a result of the transaction.
At Life Settlement Advisors, we understand that major financial decisions should not be taken lightly. We’ll start by getting to know you and your situation, and then we’ll familiarize ourselves with your policy and present your best options for getting the most value out of it. When you’re ready to start the process, don’t hesitate to get in touch!
Does My Policy Qualify for a Life Settlement?
Your policy likely qualifies for a life settlement if it meets the eligibility criteria related to the policyholder’s age, the policy’s death benefit, and other considerations, outlined below.
- Age: The policyholder is at least 65 years old, with a life expectancy of around 15 years or less.
- Policy Type: Life settlements aren’t just for whole life insurance policies. Depending on your circumstances, you may also be able to sell other policy types, like universal life, convertible term life, joint life or second to die, variable universal life, or indexed universal life policies.
- Death Benefit: Life settlements are available for policies with a death benefit of $100,000 or more.
- Premiums Paid: Typical eligibility requires the policy premiums to equate to 5% (or less) of the policy’s face amount.
- Date Issued: In most cases, a policy needs to have been active for at least 25 months to qualify for a life settlement. This requirement does vary depending on the state you live in, though—and can be as much as 5 years.
- Ownership Type: Life settlements aren’t just for individual life insurance policies. Many corporate, foundation, business, non-profit organization, and trust-owned policies also qualify for a life settlement.
Can You Ever Sell Your Life Insurance Policy If You Are under 65?
Yes, but only in very specific cases. Selling an unwanted or unneeded policy without meeting the age-65 threshold usually means pursuing a viatical settlement. This option is only for terminally-ill individuals with a life expectancy of two years or less.
Can You Sell Your Life Insurance Policy for Cash?
Use our free life settlement calculator to check your eligibility and get the process started.
Discover Your Best Offer—With Life Settlement Advisors
Hopefully, this article has answered the most pressing questions you might have about life settlements. If you’re still not sure about whether a life settlement is right for you—or you’re ready to get the process started—our team is ready to work with you. We’ll help you turn that unwanted or unneeded life insurance policy into real, tangible cash you can use to cover emergency expenses, treat yourself to a vacation or lifestyle upgrade, or whatever you might need. See how it works, or reach out to submit your case today.
