How Do I Sell My Life Insurance Policy for Cash?

How to Sell Your Life Insurance Policy for Cash Through a Life Settlement

If you want to sell life insurance for cash — also known as a life settlement — you’ve picked a good time. The life settlement market is predicted to see significant growth through 2025 and beyond, thanks to aging populations and changing economic conditions.

Of course, it’s one thing to consider selling your policy. It’s another to take that step and actively pursue a substantial payout. Here’s what you need to know about selling your life insurance policy for cash.

CAN I SELL MY LIFE INSURANCE POLICY FOR CASH?

In short, yes. If you no longer need some (or all) of your life insurance policy, you can sell the unneeded portion for cash. For example, if you have other investments with a higher value than your insurance policy, it may not make sense to keep paying monthly premiums. Or, you might decide that retirement is worth enjoying and sell some of your policy to take the trip you’ve always wanted or start that hobby you never found time for during your workweek.

In a life settlement, you sell your policy to a third-party buyer or investor. They become the beneficiary, and you receive a lump sum. Consider a man in his 70s with a life insurance benefit of $500,000. He sells the policy to a buyer for $75,000. This means he receives $75,000 and amends the policy to list the buyer as owner and beneficiary. The buyer is now responsible for paying all premiums on the policy and receives the entire $500,000 death benefit when the policyholder passes away.

Several factors impact your payout, including:

  • Age: In most cases, buyers won’t purchase policies until the policyholder is at least 65. There are exceptions for failing health, however.
  • Health: Put simply, poor health makes policy purchases more attractive to buyers. In the example above, if our 70-year-old has a chronic condition that means he likely won’t reach 80, his policy becomes more valuable because buyers stand to collect sooner.
  • Policy value: In most cases, buyers are not interested in policies worth less than $100,000.
  • Market conditions: Market conditions can impact the amount you receive for your policy. For example, uncertainty about interest rates or economic policy could lead to more conservative offers for your policy, while stable economic conditions can drive higher payouts.

BENEFITS (AND DRAWBACKS) OF SELLING YOUR LIFE INSURANCE POLICY

Selling your life insurance for cash comes with multiple benefits and some potential drawbacks.

Benefits

Higher payouts than cash surrender

Another option if you no longer need your policy is cash surrender. In this case, you surrender your policy back to your insurer, who pays you the accumulated value of your policy. This value is typically the sum of all premium payments minus any cash surrender charges.

On average, life settlements return four to seven times more than cash surrender. This means that if your insurance company offers you $10,000 as a cash surrender, you could earn between $40,000 and $70,000 in a life insurance settlement.

Lump-sum payments

Once your life settlement transaction is complete, you receive a lump sum. You can spend that money however you prefer — take a holiday, make smart investments, pay down outstanding bills, or tackle home improvement projects. The choice is yours.

No premium payments

If you sell your policy, the buyer becomes the beneficiary and pays all premiums. This means you get the dual benefit of a lump sum payment from the buyer, and no longer have to pay your life insurance premiums each month.

You choose your buyer

In a cash surrender, you have only one option: your insurance provider. In a life settlement, you choose the buyer who provides the best offer.

Drawbacks

Loss of death benefit value

Once you sell your policy, the death benefit is no longer available to your family when you pass away. Instead, the purchaser becomes the beneficiary.

Possible taxes on payouts

Depending on how much you’ve paid in premiums and the amount you receive as a benefit, your proceeds may be subject to tax. Before you sell your life insurance for cash, consult a professional accountant or other financial expert to determine if taxes apply.

A complex process

State insurance commissioners typically regulate life insurance, and many states also regulate life settlements. As a result, there is a substantial amount of oversight and documentation required to ensure sales are handled legally and fairly, and the process can be time-consuming and confusing if you don’t have a background in finance.

HOW TO SELL A LIFE INSURANCE POLICY FOR CASH

You can choose to take on the task of selling your life insurance policy on your own or find expert help.

A good place to start is with your financial advisor. They can offer insight about your current finances and the impact of a life insurance settlement.

From there, consider finding a reputable life settlement broker. Brokers have your best interests in mind — it’s their goal to get you the best value for your policy. They use a network of industry connections to find prospective buyers and encourage competition, boosting your potential payout as a result. An experienced broker will also walk you through the steps of selling an insurance policy, so you can rest easy that you’re getting a fair market value for your life insurance assets.

Selling your life insurance policy for cash can be a great financial decision, but it’s not right for everyone. It’s important to work with a life settlement broker who can guide you through the process and help you make the best decision. If that’s something you’re looking for, reach out to Life Settlement Advisors. We’d love to help you navigate the decision of selling your policy. Feel free to contact us directly or check out our educational resources to learn more about life settlements.

Get in touch with Life Settlement Advisors today to take the first step toward converting your policy into cash.
Life Settlement Advisors
Leo LaGrotte
llagrotte@lsa-llc.com
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.