A life insurance policy that has served you well for decades may perform very differently on the secondary market once you decide to sell. Knowing how term life insurance vs. universal life insurance policies compare in a life settlement context can affect your eligibility and how much time you have to act.
The Difference Between Term and Universal Life Insurance
The main difference between universal life insurance vs. term comes down to permanence and cash value. Term policies provide coverage for a fixed period and expire at the end of that term. Universal life policies are designed to remain in force for your entire life and accumulate cash value over time as long as you keep meeting your premium requirements.
This is how each policy type works, and when selling makes the most sense:
- Term life insurance: Coverage lasts for a set period, usually 10, 20, or 30 years. Premiums are generally lower, but the policy carries no cash value and expires if you do not renew or convert it. Selling makes the most sense when your policy is convertible, and you are approaching the end of the term.
- Universal life insurance: These policies remain in force for your entire life and accumulate cash value over time. Selling makes the most sense when premiums have become difficult to manage or the coverage no longer fits your estate plan.
Having a terminal or chronic illness changes how you calculate your best option, though. In that case, viatical settlements differ from life settlements in ways that may make a viatical the right path regardless of policy type.
Pros and Cons of Selling Term and Universal Life Insurance
Both policy types can qualify for a life settlement, but the trade-offs are different. Here’s what to consider for each.
Term Life Insurance
While you can sell a term life insurance policy, your eligibility to convert it depends on the conversion rider. These are the pros of a life settlement for term insurance:
- It converts a lapsing policy into cash before it expires.
- It eliminates future premium obligations without walking away empty-handed.
- Converting the policy does not require a medical examination.
And these are the cons of selling term insurance:
- Eligibility depends on whether your policy includes an active conversion rider.
- Most term policies carry no cash value, so convertibility and the death benefit are the primary factors buyers evaluate.
Universal Life Insurance
A permanent life insurance settlement through a universal life policy generally produces stronger outcomes, partly because how whole and universal life settlements compare comes down to cash value.
Here are the pros of choosing to sell your universal life insurance policy:
- Cash value accumulated in the policy reduces the buyer’s net cost basis, which may contribute to a stronger offer.
- They give the owner the option to draw from the cash value to lower premiums, which reduces the buyer’s ongoing costs.
The cons of selling universal life insurance are:
- Any outstanding loans against the policy reduce the net proceeds you receive.
- The sale process may take up to 90 days.
Term vs. Universal Life Insurance in a Life Settlement
Policy type is one of the first things an institutional buyer evaluates when assessing a submission. Universal life policies enter the secondary market with built-in advantages that term policies do not carry, and knowing which side of that line your policy falls on is the most important first step you can take.
The table below outlines how each policy type compares across the five most important factors in a life settlement:
Factor |
Universal Life |
Term Life |
Eligibility |
Qualifies as permanent coverage and is highly attractive to institutional buyers. | Qualifies only if an active conversion rider is available. Life settlement eligibility depends entirely on that window being open. |
Cash Value |
Accumulated cash value increases buyer interest and drives stronger offers. Indexed universal life insurance settlement value varies by credited interest history. | Carries no cash value. Offers depend entirely on the death benefit and the buyer’s life expectancy assessment. |
Payout Potential |
Usually higher due to permanent coverage and accumulated cash value. | Lower overall. Convertible term life insurance policies can qualify but rarely match universal life returns. |
Premium Obligations |
A flexible premium structure gives buyers more room to manage ongoing costs, which works in the seller’s favor. | Renewable term premiums increase over time, reducing buyer interest and putting downward pressure on offers. |
Timing |
Carries no conversion deadline, though the insured’s health and ongoing premium obligations mean timing still matters. | You must act before the policy conversion rider expires with a life settlement term policy. If the window is still open, the path forward is selling a term life policy after conversion, which means converting to a permanent policy while you still can and then selling the resulting policy on the secondary market. |
Find Out What Your Policy Could Be Worth
Policy type is just one piece of the puzzle. Age, health, face value, and current demand in the life settlement secondary market all factor into what a specific policy could return, and no general comparison can substitute for a professional review of your actual policy details.
Tax considerations also play a role before you commit to anything, as life settlements follow different rules than a standard surrender. Review them with your CPA before proceeding to avoid any tax surprises.
Life Settlement Advisors works exclusively on the seller’s behalf, shopping your policy to multiple institutional buyers to find you the strongest possible offer. Find out if your policy qualifies or submit your policy for a free review to take the next step.
FAQs
Can a Term Life Insurance Policy Be Sold in a Life Settlement?
Yes, but only if your policy includes an active conversion rider and the conversion window has not yet closed. Once you convert to a permanent policy, it may qualify for the secondary market.
Does Universal Life Insurance Always Qualify for a Life Settlement?
Not automatically. You still need to meet age and health eligibility requirements, and your policy must carry a minimum death benefit of $100,000. A professional review is the most reliable way to assess whether your specific policy qualifies.
What Happens to My Life Settlement Options if My Conversion Rider Has Expired?
If your conversion rider has expired and your term policy has not been converted, then the life settlement is no longer available. Letting a convertible policy lapse without first exploring the secondary market is one of the most common mistakes seniors make.
