A life insurance policy document can be overwhelming to look at if you haven’t seen one since you first took out your policy. But knowing which sections matter and what they tell a broker puts you in a much stronger position before you have your first conversation about selling your policy. This guide shows you how to read a life insurance policy from a seller’s perspective so you know exactly what to look for and where to find it.
The Declarations Page: Your Policy at a Glance
The declarations page is the first thing to pull out when reviewing your policy. It summarizes the most important parts of a life insurance policy in one place:
- Policy number
- Policy type
- Name of the insured
- Name of the owner
- Death benefit
- Effective date
- Beneficiary designation
Of all these, keep in mind that the policy owner vs. insured are not always the same person. You may have taken out a policy on a spouse or a business partner, which means two different names will appear on the declarations page. Who the owner of a life insurance policy is determines who has the right to sell it, so it’s important to confirm which role belongs to you before you go any further.
Understanding Premiums and Cash Value
Your premium schedule tells you what you owe and when. Buyers care about this because they take over your premium obligations once the sale closes. That means a policy with lower premiums relative to the death benefit is more attractive on the secondary market than one where ongoing costs eat into the buyer’s expected returns.
It’s also a good idea to understand the difference between face amount and cash value before you speak to anyone. The face amount is the death benefit your beneficiaries would receive. Cash value is the savings component that accumulates inside permanent policies over time. Buyers look at both very closely as they directly affect their expected earnings, which is why the value of your life insurance policy on the secondary market largely depends on them.
Your insurer can also provide an in-force illustration life insurance document on request. It’s a projection of how your policy’s cash value and death benefit are expected to change over time and gives a broker a more complete idea than the policy document alone. A policy illustration is one of the first things a broker will ask from you once you begin a professional review.
Conversion Clauses and Riders
Check if your policy has a conversion clause before you assume it has no secondary market value. A conversion clause gives you the right to convert a term policy into a permanent one without proving insurability, which is what opens the door to a life settlement. Without it, you won’t be able to sell a term policy. With it, you may have more options than you realize, including alternatives to lapse or surrender that most policyholders never consider. The conversion clause comes with a deadline, though. Once that window closes, you won’t have the option to convert anymore.
Once you’ve located the conversion clause, look for any riders attached to the policy. These are optional add-ons that modify your coverage and affect what a buyer will pay. For example, an accelerated death benefit rider lets you access a portion of the death benefit while you’re still living. A waiver of premium rider suspends your premium payments if you become disabled. Each one changes the policy’s profile in ways that will affect how much a buyer will pay for it.
Why the Contestability Period Matters
The life insurance contestability period is the window where the insurer reserves the right to review a claim before paying out the death benefit. It’s usually a two-year window after the policy is issued, so buyers always check the issue date to confirm the policy is past that window before they purchase it.
If your policy is more than two years old, then the contestability period has likely passed, and this is no longer a concern. If it’s not, a broker can help you evaluate if your policy still qualifies for the secondary market and what terms may apply to a sale during that window.
What If You Can’t Find Your Policy?
Not having the physical document doesn’t stop you from selling. Your insurer keeps a record of every policy they’ve issued and can provide a duplicate on request. Call the customer service number on any correspondence you have from them, provide any authentication information or documents they request, and ask for a copy.
If you don’t know which insurer has your policy, check your bank statements for recurring premium payments. The charge on your statement will name the company. You can also search the National Association of Insurance Commissioners (NAIC) Life Insurance Policy Locator for free to search participating insurers.
Taking these quick steps before you surrender a life insurance policy or let it lapse could be one of the smartest financial decisions you could make. A policy you can’t find could still be worth much more than what you’d receive by walking away.
Preparing Your Policy for a Professional Review
Gathering your policy details commits you to nothing. It simply gives a broker everything they need to evaluate your policy’s potential secondary market value and whether options like selling a portion of your life insurance policy make sense for your situation. This is what to pull together before your first conversation:
- Your declarations page or policy number
- Your current premium schedule
- Your most recent yearly statement or cash value summary
- Any rider documentation attached to the policy
- An in-force illustration if you’ve requested one from your insurer
You’ll also sign a medical records release form at some point in the process. This authorizes your broker to gather your medical records on your behalf so you don’t have to coordinate that yourself.
Once you have those documents in hand, Life Settlement Advisors can assess your policy’s secondary market value at no cost and with no obligation. With more than 26 years as a seller’s broker, we’ve helped thousands of seniors understand what their policy is really worth. Find out if you qualify to get started.
