Did you know you can sell all or a portion of a life insurance policy, even term insurance?
(4 minute read)
Are your monthly life insurance premium payments too large for your budget? Or have your assets reduced in value with age and your policy benefit will not be needed? If so, you might benefit from selling your life insurance policy. But what do you need to qualify and what role does a life settlement advisor play in this process?
Read on to learn more about the qualifications involved with selling your life insurance policy below.
What Kind of Life Insurance Policies Can be Sold?
As a general rule, any life insurance policy is eligible for sale as long as it can be converted to a permanent policy plan. This includes universal life, whole life, survivorship universal life, and survivorship whole life policies. You can even sell a term life insurance policy, so long as it is convertible. However, it should be noted that it might cost money to convert a term policy. With that being said, converting a term life insurance policy can still be a worthwhile investment, depending on your specific case. Meeting with a life settlement advisor will help you work out those details and determine if converting your life insurance policy is the right path for you. Additionally, Life Settlement Advisors offers a sell my life insurance policy calculator to help you determine if you might qualify for a life settlement.
Although any life insurance policy can technically be sold, there are specific qualifications that individuals need to meet to successfully receive a life insurance settlement. We will elaborate on these specific qualifications in detail below.
Who Qualifies for a Life Settlement?
At a basic level, there are five factors that are in consideration when your eligibility for a regular life settlement is examined:
- Your age and life expectancy
- The type of life insurance policy you have
- How much your current premium is
- How much your death benefit amount is
- How long your life insurance policy has been inforce or active
Please note that the eligibility requirements for viatical settlements differ from life settlements. Viatical settlements are made for terminally ill individuals who have a life expectancy of two years or less. In addition, viatical settlements involve the sale of an existing life insurance policy at a discounted rate from its value for cash. Whereas traditional life settlements offer the insured a cash settlement that is often greater than the cash surrender value.
In the Q and A section below, we will answer some of the most commonly asked questions regarding the qualifying process of pursuing a life settlement.
How Long Does Your Life Insurance Policy Have to Be Inforce Before Pursuing a Life Settlement?
It is common practice that a life insurance policy must be inforce or opened and active for 25 months at minimum in order to qualify for a life settlement. However, this requirement differs from state to state. For example, some states require your life insurance policy to be open for five years before it is eligible for sale. If you are unsure of the rules and regulations associated with life settlement policies in your state a life settlement advisor can help educate you on this information.
How Old Do You Have to Be to Sell Your Life Insurance Policy?
The ideal candidate for selling a life insurance policy is a person who is 65 years of age or older, who has experienced a negative change in health since the policy was issued. Additionally, this individual would have an estimated life expectancy of 15 years or less.
Can You Sell Your Life Insurance Policy if You are Under 65?
In some cases you can sell your life insurance policy if you are under the age of 65. However, you will need to be extremely ill and your life insurance policy must be determined to last longer than you are expected to live. You could also choose to pursue a viatical settlement as we mentioned in the above section.
Is There a Penalty for Cashing Out Life Insurance?
Oftentimes the insurance company will take a surrender fee out of the total settlement. The surrender fee differs depending on the insurance company and the policy of the insured. In addition to the surrender fee, policyholders will have to pay taxes for the part of the payout they receive directly as a result of the life settlement. As it stands, the policy holder is required to pay taxes on the amount they receive that has exceeded the amount paid in premiums. This means that if you paid $15,000 in premiums and received a $80,000 payout, you will then pay taxes on $65,000 in income, at capital gain rate. A life settlement advisor helps you address both of these situations to ensure that you receive the best deal possible and that everything operates smoothly. If you would like to learn more about the pros and cons of selling a life insurance policy then feel free to refer to our Selling a Life Insurance Policy article.
Best Company to Help You Sell Your Life Insurance Policies?
There are many companies that buy life insurance policies, but some are better than others. The best life settlement companies offer free consultations, have extensive industry knowledge, and are transparent throughout the entire process. Life Settlement Advisors offers all of this and more when you choose us as your partner. Selling an unwanted life insurance policy is no different than selling your car, home or any other valuable asset that will create immediate cash. Contact us today to learn more.
I am always happy to answer any and all questions about these life-transforming transactions.
Life Settlement Advisors