You may not realize that you can sell a term life insurance policy, but it’s true — under the right conditions.
To sell your policy, it must have what’s known as a “convertible rider.” This rider lets you convert your term life insurance into permanent, whole-life or universal life insurance, which are in turn eligible for a life settlement.
Not sure how to sell a term life insurance policy? Here’s what you need to know about making the switch, selling your policy and getting the most value for your term life insurance.
WHAT IS A TERM LIFE INSURANCE POLICY?
A term life insurance policy provides coverage for a fixed period, known as a term. If the policy expires before it is used, you receive no benefit.
Let’s say you purchase a 10-year term life insurance policy and name your children as the beneficiaries. If you pass away during those 10 years, the insurance activates and your children receive the payout. If you’re alive at the end of a decade, the policy expires and no benefits are paid.
You may have the option to renew or extend your policy at the end of your term, but this requires a new agreement that typically includes higher premiums.
There are several benefits to term life insurance over whole-life or permanent insurance. First, you can purchase coverage in increments rather than committing to a permanent policy. This means less time spent paying premiums and reduced monetary losses if you choose to surrender or sell your policy. In addition, term life premiums are typically much lower than their whole-life counterparts because payouts are only applicable during the specified term.
Unlike permanent or whole life insurance policies, term life policies can expire. This means that if you reach the end of your term and don’t extend your policy, you lose everything you’ve paid in premiums. In addition, term life policies have no inherent cash value. While many permanent policies have an equity component that grows as you pay premiums, term life policies do not.
As a result, if you choose to surrender your term life policy, you won’t receive a payout. One way to avoid this loss is to convert your term policy into a permanent one and then sell it via a life insurance settlement.
WHAT IS A LIFE INSURANCE SETTLEMENT?
A life insurance settlement is the process of selling some (or all) of your policy to a third-party buyer. This is in contrast to a cash surrender, which is sometimes called “cashing out” an insurance policy. In this case, you cancel your insurance policy and receive back a portion of the money you have paid in over time.
The amount you receive for a cash surrender is defined by your agreement with your insurance provider. In some cases, you receive an amount equal to the premiums you have paid on the policy. In others, your policy may come with an investment portion that accrues value over time. When cashing out your policy, you are also subject to any fees or other charges laid out in your insurance policy agreement.
In a life insurance settlement, meanwhile, the amount you receive for your policy is determined by negotiating with one or more potential buyers. As a result, settlements typically result in significantly higher payouts. According to data from the Life Insurance Settlement Association (LISA), life settlements averaged 6.5 times greater value than cash surrender in 2024.
HOW DO I SELL MY TERM LIFE INSURANCE POLICY?
To sell a term life insurance policy, you first need to convert it into a permanent, whole-life or universal policy. Doing so requires that your policy carry a convertible rider, which allows you to make the switch. Most term life policies offer this rider.
Once you convert the policy, you can then sell some or all of it to a third-party buyer rather than surrendering the policy to your insurer. The caveat? It’s worth selling your policy ASAP after you make this switch. This is because permanent life insurance policies have premiums anywhere from five to 15 times higher than term life policies. The longer you keep your new permanent policy, the more you pay in premiums and the more potential value you lose.
To sell your now-permanent policy, you have two options: Take on the task yourself, or work with an experienced life settlement broker. An experienced life settlement broker knows how to determine the value of your policy on the secondary market. They gather all the necessary information and help set a clear expectation of what the policy is worth. Equipped with this information, life settlement brokers will explore the market to find multiple buyers who are interested in your policy.
Life settlement brokers can also help you navigate the process of selling some of your new permanent policy and keeping the rest. For example, we helped a 74- year-old cancer survivor who had $1.5 million term policy get the most from this investment. Originally, he planned to convert only a small portion of this policy, $100,000, as coverage for himself to meet his current needs and let the remainder of his policy lapse.
Our team was able to get him $45,000 in a life settlement by converting and selling $1.2 million of the policy. He kept the remaining $300,000 as insurance for himself.
4 TIPS TO HELP SELL A TERM LIFE INSURANCE POLICY FOR CASH
If you’re considering a term life insurance conversion and sale, start with these four tips to get the most for your money.
1. Talk to Your Insurance Company
The first step in selling your term life insurance is converting your policy, which means talking to your insurance company. Refer to your policy documents to confirm that you have a convertible rider, then contact the carrier directly to determine next steps and how long the process will take.
2. Understand the Settlement Process
Any sold portion of your policy belongs to the buyer. This means that if you have a $200,000 policy that you’ve converted from term to permanent life insurance, and you sell $150,000 to a third party, they become the beneficiary of this $150,000.
3. Be Prepared to Act Quickly
The longer you hold your new permanent policy, the more you pay in premiums. Before you convert your term life insurance, make sure you’re prepared to act quickly if an opportunity arises. It’s worth talking to your financial advisor, accountant and a life settlement expert to get a read on current market conditions before you make the move.
4. Work With an Experienced Broker
With any sale and transfer of life insurance comes a large amount of paperwork and the need for regulatory and fiduciary compliance. An experienced settlement broker can take on these tasks, leaving you free to focus on getting the most for your policy.
GET MORE OF YOUR MONEY BACK WITH A TERM CONVERSION AND LIFE SETTLEMENT
Left unconverted, term life insurance offers no cash value, meaning you’ve paid premiums with nothing to show. By converting your policy, you can sell it for immediate cash that lets you pay down debts, take on new projects or kickstart your retirement.
Ready to sell your term life insurance policy? Get in touch with Life Settlement Advisors today and take the first step in converting your policy to cash.
