Sell Your Life Insurance Policy: What You Need to Know

Selling a Life Insurance Policy

Life insurance may have made sense earlier in your life, but that doesn’t mean you’re stuck with your policy forever. Maybe you’re concerned about premium affordability, or your children can support themselves now.

You could let it lapse or surrender it for the policy cash value. Those aren’t the only options, though.

A life settlement is one policy lapse alternative. It involves selling your whole or term life insurance policy to a third-party buyer. They assume all the policy owner rights and responsibilities. That means they take over your premium payments and are entitled to the death benefit when you pass away.

In exchange, you get a one-time cash payout that you can spend however you like. For example, some people use this money to pay for travel or a home renovation. It can also supplement your retirement income.

A life settlement is one of the top options for selling a life insurance policy as a senior. You receive an immediate payout that’s typically worth more than the cash surrender value. It’s also more than you would receive if you let the policy lapse, which usually returns nothing.

Learn more about how life settlements work.

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How Much Do You Get for Selling Your Life Insurance Policy?

While every sale is different, a life settlement (selling your life insurance policy) will typically result in higher dividends than surrendering a policy. In fact, a life settlement often yields between four and seven times the amount of money than what the surrender value would be. To put that in perspective, many people understandably wonder, “How much money do you actually get when you sell your life insurance policy, when it’s all said and done?” Recent data suggests you can recoup around 20% of a policy’s face value in a life settlement.

So, what is the cash value of a $100,000 whole life insurance policy? If we apply the 20% figure suggested above, the life settlement value would be right around $20,000—which is much better than the policy’s surrender value.

Unfortunately, too many people are unaware that selling their life insurance policy is an option and opt for the lower-value surrender. Worse yet, others simply lapse their policy, which means they’ll see no return on the premiums they invested. It is estimated that roughly $200 billion worth of life insurance will lapse every year between 2018 and 2027. In many cases, a life settlement could provide a lump payout for medical bills, retirement, or investments.

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Am I Eligible to Sell My Life Insurance Policy?

Generally speaking, there are five requirements that must be met to be considered for a life settlement. These requirements include:

• Policyholder’s age
• Type of life insurance policy
• Current premiums
• Death benefit amount
• Current medical conditions of the insured

For example, the ideal life settlement client is a male or female who is in their mid-70s or older who has undergone a change in health since the issue date of the policy. This individual must have a life expectancy of fewer than 15 years. Keep in mind this is an ideal description, and the actual requirements are more nuanced.

Below we have compiled a list of frequently asked questions about life settlement qualifications to expand upon the finer details of the requirements.

At What Age Can You Sell Your Life Insurance Policy?

The ideal life settlement candidate is in their mid-70s or older, but individuals 65 and older may be able to sell, especially if chronic medical conditions are present. The policyholder must have a life expectancy of under 15 years, along with a change in health since the policy was issued.

However, this is different for viatical life settlements, which are settlements designed for terminally ill individuals with a life expectancy of fewer than two years. Individuals younger than 65 with a terminal illness may be eligible for a viatical settlement. This can be used to help pay for medical bills and any other expenses.

Can I Sell My Term Life Insurance Policy for Cash?

Term life insurance policies may be sold if they have a convertibility option. This option converts a term life insurance policy into a whole or permanent life insurance policy. It might cost money to convert a policy, but it may be a worthwhile investment, depending upon other circumstances. Before making the decision to convert a policy, policyholders should review the fine print to understand what costs they may incur or review the decision with a financial advisor.

What About Other Types of Life Insurance Policies?

Along with convertible term life insurance policies, most other policies can be sold via a life settlement, too. This includes whole life, universal life, joint life or second to die, variable universal life, or indexed universal life.

It is important to note that most companies that buy term life insurance policies, similar to those that buy whole life only, have certain eligibility requirements. For example, most require that a policy be active for at least 25 months in order to be sold. With that said, there are states that require a policy to be active for at least five years before it can be sold. A life settlement advisor or wealth manager can look at the requirements for a specific location to determine whether or not a policy is eligible for sale.

What Requirements Are There for Premiums and Benefits?

Policy premiums typically need to be less than 5% of the face value for a life settlement. In general, the lower the premium, the more valuable the policy. This is because the policy buyer will assume the payment of premiums, so they typically want policies with lower monthly costs.

In addition to this, death benefits must pay out at least $100,000 to qualify for a life settlement. Remember that with a life settlement, the buyer of the policy will receive the death benefit once the original policyholder passes. Keep in mind that policies with higher death benefits—and therefore higher premiums—may still be something an investor is interested in.

If you’re wondering, “Can I Sell My Life Insurance Policy?” This calculator can be used to check whether or not your policy is eligible and if you meet the requirements. It’s important to note that while this tool will answer your basic questions, a detailed application is required to begin the life settlement process in earnest.

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Reasons Why Selling Your Life Insurance Policy Makes Sense

It’s natural for your financial priorities to change as you age, especially after retirement or a change in health. Plenty of people use these transition periods to reevaluate their life insurance policies and decide if they want to sell them in a life settlement. Here are four signs it might be time to sell.

The Premiums Have Become a Burden

If your life insurance premiums have become unaffordable or unmanageable, you may be considering lapsing the policy or surrendering it. However, before moving forward with either of those options, consider looking into selling your policy. For those who qualify, life settlements often offer a higher payout than the surrender value—putting more money directly into your pocket.

There Is a Need for Immediate Funds

Sometimes, policyholders need access to immediate liquidity. If this is the case, a life settlement can provide a one-time lump sum to help pay for medical bills or other unforeseen expenses. Money gained from the sale of a life insurance policy can also be used to supplement retirement savings when needed, too. Others simply want access to liquid assets to create new investments or travel. The options on how to use the payout are limitless.

There Is a Change in Circumstances

As we get older, it’s not uncommon for our circumstances to change. Policies that were purchased to temporarily replace income, cover dependent care, pay for end-of-life expenses, or create an inheritance simply may no longer be needed. If you are divorced or widowed and do not have dependents who need the financial benefits provided by a life insurance policy, seeking a life settlement can provide a payout to help cover expenses now, not later.

There Is a Desire to Downsize the Policy

One of the major benefits of a life settlement is that you can sell a portion of a policy. In this case, the buyer pays for all of the monthly premiums, and they receive a portion of the death benefit. However, the policyholder retains a portion of the death benefit for their beneficiaries, all the while paying no additional monthly premiums. This is often accomplished through a contractual promise on the part of the buyer to pay a portion of the death benefit in the future. This is an excellent option for those who still want or need some coverage but cannot afford to keep paying steep premiums.

What are the Pros and Cons of Selling Your Life Insurance Policy?

Before selling your life insurance policy, it can be helpful to understand the advantages and disadvantages of a life settlement. After all, entering any major financial situation should not be done lightly; policyholders need to understand what will happen when they sell their policy to prepare themselves and any beneficiaries for changes or repercussions.

Learn more about the pros and cons of selling your policy.

What Are the Advantages of a Life Settlement?

There are two main advantages of a life settlement: a substantial lump-sum payment and freedom from paying any more premiums on an unwanted or unneeded policy.

• One of the biggest advantages of selling a life insurance policy is the one-time, lump-sum payout that it comes with. This provides the policyholder with immediate liquid assets that can be used for medical bills, retirement, or even family travel. The fact is, surrendering a policy just doesn’t pay out as much as a life settlement. The average surrender value of a life insurance policy is $460 for every $100,000 in value. However, a life settlement is likely to return at least 20% of the death benefit of the policy, which is often significantly higher. In the example above, 20% of $100,000 is $20,000—much higher than the $460 above.
• In addition to receiving the payout, selling a life insurance policy means that sellers no longer have to worry about paying costly premiums. Even those who choose to sell only a portion of their policy can benefit as they will no longer pay any premiums while receiving a portion of the death benefit.

What Is the Downside of Selling Your Life Insurance Policy?

While a life settlement is almost always preferable to simply surrendering a policy, there are a few finer details you should be aware of, including:

• Tax Consequences | It is important to note that policyholders will likely have to pay taxes on at least part of the payout they receive. So, exactly what are the tax consequences of selling a life insurance policy? Essentially, you must pay taxes on any amount you receive that exceeds the amount of the seller’s basis (or what you paid in premiums). For example, if you paid $30,000 in premiums and received a $45,000 life settlement, you would need to pay taxes on the $15,000 difference. However, working with a financial advisor can help you plan for this situation.
• Burdensome Process | For some, selling their life insurance can be a difficult process, from finding a buyer to working through all the legal paperwork and requirements. However, this disadvantage is easily overcome by working with a life settlement company like Life Settlement Advisors. Life settlement companies can educate you on the process and work with you and your wealth advisor during every step of the process.
• No Beneficiary for Heirs | For those policyholders who still have heirs, it is important to remember that selling their entire policy means their heirs will not receive a death benefit. However, policyholders in this situation may be interested in selling a portion of their policy, which would provide a payout while still retaining a portion of the death benefits for loved ones.

By understanding the basic advantages and disadvantages of life settlements, you and your financial advisor can make the best possible decision for you and your family. Next, let’s explore what the actual process looks like.

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How to Sell a Life Insurance Policy

Once you have decided to look into selling your life insurance policy, you likely have a lot of questions, including how to find the best companies that buy life insurance policies, as well as how it all works. To help you out, we’ve compiled a list of questions—including step-by-step instructions on using a free life settlement calculator, filling out an application, and what to expect throughout the process.

Who Buys Life Insurance Policies?

You may be wondering who actually buys life insurance policies. In the industry, there are two major terms to be aware of: life settlement brokers and life settlement providers.

• First, there are the life settlement brokers. Also known as life settlement companies (and not to be confused with the life insurance companies that sell the original policies), these companies facilitate the process for individuals looking to recoup value from their policies. They work on policyholders’ behalf by walking them through the process, shopping around the policy, securing offers, and completing all the necessary paperwork. Life settlement companies typically work on commission and receive a set percentage of the sale. Here at Life Settlement Advisors, we are a life settlement company with more than 24+ years of experience in the life settlement industry.
• Second, there are life settlement providers, also known as direct buyers. Providers purchase policies from policyholders. While these are sometimes purchased to keep as their own investment, most providers purchase policies on behalf of an investor or financial institution. Providers want to purchase the policy for the least amount possible; they do not shop the seller’s policy. Their business model is buy low and sell high.

What Are the Steps of Selling a Life Insurance Policy?

While selling a life insurance policy is an important decision that may take time to make, once you decide to sell, the process is fairly straightforward. This is especially true when working with a life settlement broker who can educate you on the process and walk you through it. There are five basic steps to selling a life insurance policy:

1. Find Out if You Qualify

Before any other work can be done, you must first find out if you qualify. You can do this by filling out a selling your life insurance policy calculator to find out if your situation meets the basic qualifications. It will ask about your gender, age, health, type of policy, as well as the premium amount and death benefit amount.

2. Complete an Application

Once you’ve used the calculator to determine that you meet the basic eligibility requirements, you should fill out a more detailed application. The application will include questions about your policy, lifestyle information, family history, detailed medical history, a list of prescriptions and contact information for your physicians. If working with a life settlement broker or a financial advisor, they may be able to assist in filling out the information about your policy.

You will also need to provide a copy of the policy, your most recent annual statement, your current policy illustration, and a copy of the trust (if trust owned). The information you provide will be used to determine if your policy can be sold, so it is important to fill it out accurately.

3. Have Application Reviewed

Upon receiving your application, policy, and medical records, life settlement companies will determine whether or not you qualify to enter the life settlement market. Most life settlement companies, including our team at Life Settlement Advisors, work with third-party, independent underwriters to ensure the accuracy of this process.

4. Receive an Offer

Once an application is accepted, the policy is placed on the life settlement market to solicit offers. Offers are made based on the information you provide. A life settlement company will provide you with the offer(s), and you will have the opportunity to accept or reject the offer. In this step, a life settlement broker or financial advisor may be able to recommend whether or not you should accept the offer.

5. Sell Your Policy

If you accept an offer, you will receive a closing packet to complete and sign. While this might sound like a lot, packets contain pretty standard documents, such as a contract, many disclosures, an insurance verification, a signed letter stating that you’re of sound mind to make this decision, and a change of ownership form. Once it is completed, you will receive one lump payout for your policy. You will no longer need to worry about the policy, including paying premiums, even if you only sold a portion of your life insurance.

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Tips for Getting the Most Out of Selling Your Life Insurance Policy

There’s no standard payout when you sell a life insurance policy for cash. The price tag depends on the insurance policy buyer and a few other factors. Follow these tips to maximize your offer:

• Consider the tax implications. If your life settlement payout is more than the amount you paid in premiums, it may count as taxable income. A financial advisor can help you plan the most strategic time to cash in.
• Go through a licensed life settlement broker. Working with a broker is the best way to sell life insurance for seniors, but be picky. Look for a vetted expert who will shop around to find the best company to sell your life insurance policy to. Avoid anyone who seems too pushy or desperate to take you on as a client.
• Make sure you meet the requirements to sell your life insurance policy. If you own a permanent policy, such as universal life insurance, it may qualify for a life settlement. Always check with your insurer or read the fine print to be sure. If your policy isn’t currently eligible, it may be possible to convert it to a permanent plan, then sell it.
• Don’t wait until you need the money. Even at their most efficient, life settlement transactions usually take at least 60 days to go through. Starting early will give you more flexibility to negotiate with companies that purchase life insurance policies.

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Alternatives to Senior Life Settlements

A life settlement isn’t right for everyone, especially if you need a solution immediately. Here are a few alternatives:

• Cash it out. If you want to make back some of your payments, you could stop paying your policy and collect the cash surrender value. This only returns a portion of what you put in, which is usually less than a life settlement.
• Let the policy lapse. If you stop paying premiums, you’ll lose coverage without getting anything back. Some insurers may allow you to reinstate the policy within a few years, but you may need to pass another physical examination first.
• Use accelerated death benefits. In some situations, your insurer could pay your death benefit while you’re still alive. This usually happens when the policyholder is terminally ill or needs long-term care. However, this amount may be less than you’d get with a life settlement, so do your research.
• Borrow against your policy. If you have a whole life policy, you may qualify for a policy loan against the cash value. This lets you take out money without selling or canceling your policy. You’ll need to repay the loan with interest, though.

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How Do You Find the Best Company to Sell Your Life Insurance Policy to?

The best and easiest way to sell an unwanted or unneeded life insurance policy is to work with a life settlement company that knows and understands the process. When searching for the best life settlement companies, look for life settlement advisors who meet the following criteria.

• They are willing to educate you, walk you through the process, and answer any questions you may have. This is an important decision, and the right company recognizes that.
• They offer free consultations. At the end of the day, you need to decide if a life settlement is the right option. The best life settlement companies offer free consultations to help you decide.
• They have experience in the industry. Look for a company that has been in the life settlement industry for years so that they will understand the ins and outs of the process.
• They are clear and transparent about what they do. As with any financial situation, it is important to work with a company that is open and honest about its process.
• They are responsive and have excellent customer service. Good life settlement advisors understand how important selling a policy can be. They should provide excellent customer service to make this process as simple as possible.

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Explore Your Options Today with Life Settlement Advisors

Is it worth it to sell your life insurance policy? Ultimately, only you can decide—but you don’t have to make that decision alone. At Life Settlement Advisors, we strive to be a voice of confidence and assurance for our clients. Our goal is to educate you about the life settlement process so you can make an educated decision about whether it is right for you. Learn more about the qualifications associated with selling a life insurance policy today.

Did you know you can sell all or a portion of a life insurance policy, even term insurance? 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.

Get in touch with Life Settlement Advisors today to take the first step toward converting your policy into cash.

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Selling Life Insurance Policy FAQs

How can I sell my life insurance policy for cash?

You might be able to sell your life insurance policy to a third-party buyer in exchange for cash. Eligibility requirements include being over 65 years and having a policy with a death benefit of over $100,000. LSA is a licensed broker who can help sell your insurance policy.

What’s the difference between a life settlement and a viatical settlement?

Life expectancy is one of the biggest differences between a life settlement and a viatical settlement. A life settlement is meant for seniors over 65 who have a life expectancy of fewer than 15 years. On the other hand, a viatical settlement is for people with a terminal illness who have a life expectancy of less than two years.

How much can I get for selling my life insurance policy?

A life settlement is usually worth around 20% of a policy’s face value. For example, if your policy provides $500,000 in coverage, you may earn around $100,000 from a life settlement. However, many factors can affect this number, so it’s best to get offers from multiple buyers before you sell. A licensed broker can help you shop around.

Why is it better to sell my life insurance instead of surrendering it?

Selling your life insurance helps you recoup more of the money you put in. If you surrender your policy, you may only get a portion of the cash value back, no matter how much you’ve spent on premiums. On the other hand, a life settlement lets you earn a lump-sum payment from selling your policy to a third party.

How long does it take to sell a life insurance policy?

Even if your broker moves quickly, it may take 60 days or longer to sell a life insurance policy. That’s why it’s best to consider your options early. If you wait until you need cash urgently, you may have less negotiating power or might not be able to receive the lump sum payment on your timeline.

Is it safe to sell your life insurance policy?

Yes! Many seniors decide to sell their life insurance policies through reputable brokers. Most states also regulate life settlements, adding an extra layer of protection for your transaction.

Do I have to pay taxes on a life settlement?

It depends on the type of transaction. If you choose a viatical settlement and meet certain criteria, you typically don’t need to pay taxes on the proceeds. However, a portion of a life settlement may count as taxable income if the payout is worth more than the amount you’ve spent on premiums. When in doubt, ask a tax professional.