How much do life insurance policies sell for?
It’s a common question for retirees who find themselves with policies they no longer need or have other, more immediate uses for the value contained in these policies.
If you choose a life settlement — which means you sell your insurance policy to a third-party buyer — you can receive 15% to 20% of your policy’s face value (on average).
So, can you sell your life insurance policy for cash? Absolutely. In this piece, we’ll explore how the process works, address the pros and cons of selling your policy, and offer tips to get the most money for your policy.
DOES IT MAKE SENSE TO SELL MY LIFE INSURANCE POLICY?
There’s no “right” answer here. For some policyholders, selling their policy is the right choice because they need cash to cover unexpected bills or life changes. For others, choosing a life settlement gives them the freedom to pursue new opportunities or adventures. And in some cases, an evaluation of current finances makes it clear that selling their policy isn’t the best move right now.
Not sure if selling your policy is the right move? Start by asking these three questions:
1. Does the policy qualify for a life settlement?
Not all policies qualify for life insurance settlements. In most cases, you need to be 65 or older, your policy has been in effect for at least 2 years, and it must have a face value of $100,000 or more.
2. What are my financial needs?
Common reasons to sell a life insurance policy include unexpected medical bills or the need for expensive home repairs. You might also be planning a trip or investing in a new property, both of which can be expensive.
3. Do I still need the policy?
Suppose you have life insurance through another provider or have investments that will provide for your children, spouse, or other family members. In that case, you may no longer need your life insurance policy.
HOW MUCH DO YOU GET WHEN SELLING YOUR LIFE INSURANCE POLICY?
It depends on your approach.
If you cancel your policy with your insurer, you receive what’s known as the cash surrender value. The cash surrender value is typically equal to the total amount of premiums you’ve paid into the policy, minus any fees or charges from your insurance provider. Consider the $100,000 policy mentioned above. After 10 years, you’ve paid $10,000 in premiums, but your financial situation changes, and you no longer need the coverage. You decide to surrender the policy for the cash value, which is $10,000. After fees and other charges, however, you’re left with just $8,000.
You can also choose to sell your life insurance policy to a third party. This is known as a life settlement. Unlike cash surrender, the amount you receive isn’t based on a predetermined value but on how much a buyer will pay. As noted above, life settlement values typically range from 15% to 20% of a policy’s face value. This means that you could receive $15,000 to $20,000 in a life settlement, more than double the $8,000 cash surrender.
How Do Life Settlements Work?
The concept of life settlements is simple. Instead of cancelling your policy — effectively returning it to your insurance company — you sell some or all of this policy to a third-party buyer.
The buyer takes over your policy. This means they pay the premiums, and they receive the benefit when you die. Here’s an example. You have $500,000 in life insurance and decide to sell $400,000 of the policy to a buyer. They purchase this part of your policy for $40,000, which you receive as a lump sum. They now pay the monthly premiums on the entire $500,000 policy and receive the $400,000 benefit when you die, while you retain a $100,000 death benefit.
What Factors Impact the Value of Your Policy?
Several factors impact the value of your life insurance policy, including:
- Your age and health: The older you are, the more your policy may be worth to buyers. The inverse is true for your health — if you have medical issues, buyers may be more interested. This is because in both cases, the policy is more likely to pay off sooner rather than later.
- Policy type: Different types of policies are worth more (or less) to buyers. For example, many term life policies are ineligible for life settlements. Universal life policies are preferred for their investment potential, while buyers may purchase whole life policies for their stability.
- Total policy value: The greater your policy value, the bigger your payout. Most buyers won’t purchase policies worth less than $100,000. Plus, if you have a larger policy — say, $1 million in coverage — you might consider selling half and retaining the rest for your family.
PROS AND CONS OF SELLING YOUR LIFE INSURANCE POLICY
Before selling your life insurance policy, it’s worth weighing the advantages and disadvantages.
Pros
Selling your life insurance generally gets you better value for your policy than if you choose a cash surrender. In addition, using a reputable and registered broker can help create competition among buyers for your policy, further increasing your return.
Cons
Once you sell your policy, the death benefit goes to the buyer rather than your beneficiary. You may also struggle to get maximum value for your policy if you choose to sell it yourself. Along with finding prospective buyers, you must navigate complex tax regulations and ensure all transaction paperwork is properly completed and filed. Keep in mind that there may also be tax implications.
HOW MUCH CAN I SELL MY LIFE INSURANCE POLICY FOR TODAY?
If you’re considering a life insurance settlement, connect with us to explore your eligibility and what payout you can expect if we put your policy on the market. With our team’s 40+ years of combined experience, we can help you get more money for your life insurance policy if (or when) you decide to sell.
