(4 minute read)
Here at Life Settlement Advisors, we’ve seen so many cases where people could greatly benefit from selling a life insurance policy. Let’s look at a fictional example of a woman named Hazel, based on real experiences:
Hazel lived in a small New Hampshire town for most of her adult life, but dreamed of moving to a warm, vibrant community in Florida. At the age of 77, Hazel was enjoying her retirement, though she was often accompanied by the solitude that comes with outliving your contemporaries. Her life insurance policy, initially purchased to support her family, had grown into a sizable asset over the decades.
As time passed, Hazel found herself facing a harsh reality: her fixed income meant her dream of warm weather and ocean breezes was just that, a dream. One crisp autumn morning, Hazel sat by her window, sipping her favorite tea. The thought struck her—did she really need that life insurance policy anymore? After all, her children were grown and each financially independent. Without the premiums each month, she might be able to afford her Florida adventure!
Determined to explore this possibility, Hazel reached out to Life Settlement Advisors to learn more about selling her policy. Imagine her surprise when she found out that a life settlement could help her reach her goal quickly with a lump sum payout that would more than cover a little bungalow near the sea. After careful consideration and consulting her family and financial advisor, Hazel decided to sell her policy. The process was smoother than she anticipated, and soon, she received a sizable sum.
Hazel was able to find the perfect home in a lovely retirement community. The sale of her life insurance policy opened a new chapter in her life, one filled with freedom and friends in her beloved Florida. When you consider a life settlement like Hazel’s, you’re looking into a decision that could significantly impact your financial situation—whether through making a dream come true or simply alleviating financial burdens.
There are many questions you should ask and factors you should examine. Unfortunately, one thing you’ll find with questions like “how much is my life insurance policy worth?” is that the answer can vary widely based on variables like the type of policy you hold, your age, and the policy’s value. At Life Settlement Advisors, we specialize in life settlements—it’s in our name, after all! Our passion is for helping you understand all the ins and outs of selling your life insurance policy and, when it’s time, assisting you with procuring the right transaction.
What Are the Pros and Cons of Selling Your Life Insurance Policy?
Selling your life insurance policy can offer financial relief and flexibility, but it’s a decision that comes with significant considerations. Here are several pros and cons of selling a life insurance policy to weigh:
Pros:
- Immediate Cash: Selling your policy provides a quick influx of money that you can use for various needs—like medical expenses, moving, or taking that once-in-a-lifetime vacation with your family.
- Relief from Premiums: You no longer have to pay premiums, which can be a significant relief, especially if your financial situation has changed since you purchased your policy.
- Financial Flexibility: The cash you receive can offer financial flexibility like debt repayment or the ability to invest in opportunities.
- Benefit Isn’t Needed: If your original reason for taking out the policy, like to protect your spouse or children, no longer applies, selling it may make financial sense.
- Higher Potential for a Return: A life settlement yields more money than the cash surrender value offered by the insurance company.
Cons:
- Loss of Benefit: The most obvious downside is the loss of the death benefit for your beneficiaries. However, life insurance policies are often meant to cover dependents in case of your untimely demise—so if your children are grown, your policy may not fit your needs anymore.
- Potential Fees: There can be fees associated with the sale, which would reduce the net amount you receive. Working with a reputable life settlement broker can give you the transparency you need to decide if the fees are offset by the potential return.
- Tax Implications: Selling your life insurance policy can have tax implications, potentially affecting your overall financial plan. That’s why it’s important to consult your tax advisor or financial planner before proceeding with a life settlement.
- Complex Process: Selling your life insurance policy involves navigating a complex market, which can be time-consuming and stressful if you try to do it alone. However, with the right partner by your side, this process can be simple and headache-free.
As with any major financial decision, it’s vital to consult with your financial and tax advisors to ensure a life settlement aligns with your overall financial strategy.
Is It Worth Selling Your Life Insurance Policy?
Whether or not it’s worth selling your life insurance policy depends on your individual circumstances. For example, if you no longer need the policy for its original purpose or you’re facing financial hardship, selling could be a beneficial move. It’s important to weigh this decision carefully, considering both the immediate financial windfall and the long-term impact on your estate.
How Much Do You Get When You Sell a Life Insurance Policy?
The amount you can get from selling your life insurance policy varies, but a life settlement typically yields about 20% of the death benefit value. This is usually between four and seven times what your surrender value would be. Factors that impact the amount you may receive are:
- The type of policy you hold.
- The policy’s death benefit.
- Your age and health condition.
- The cash value of your policy.
You may be able to get a general idea of how much you’ll receive by using a life settlement calculator, but keep in mind it’s best to talk with a professional like Life Settlement Advisors for the most accurate information.
Can You Sell a Universal Life Insurance Policy?
Yes, you can usually sell a universal life insurance policy if you meet the other qualifications for a life settlement. These policies are often attractive to buyers due to their flexibility and potential cash value.
Can I Sell My Whole Life Insurance Policy?
Yes, typically whole life insurance can be sold, as long as you are eligible for a life settlement. These policies are often appealing in the life settlement market due to their cash value and guaranteed death benefit.
How Old Do You Have To Be To Sell Your Life Insurance Policy?
Generally, selling a life insurance policy for cash is only an option for individuals age 65 or older. This age requirement is due to the fact that a policy that is closer to maturity is a more attractive investment for a potential buyer. Life expectancy also plays a crucial role in determining a policy’s value on the secondary market.
You can use our free life settlement eligibility calculator to find out if you qualify for a life settlement. This tool can help you get an idea of where you stand once you’re ready to apply. Keep in mind that we won’t know for sure if a life settlement is right for you until after the application process.
Do I Have To Pay Taxes if I Sell My Life Insurance Policy?
When you sell your life insurance policy, the transaction may be taxable. However, other ways of disposing of your unwanted policy also carry this burden—for example, you also might have to pay tax upon surrender of a life insurance policy. The amount of tax you’ll pay with a life settlement usually depends on the difference between the cash you receive and the premiums you’ve paid. It’s essential to consult with a tax professional to understand your specific tax implications.
What Is the Best Way To Sell a Life Insurance Policy?
The best way to sell your policy is to follow a few simple steps:
1. Evaluate Your Needs: Start by assessing why you want to sell your policy. If your circumstances have changed significantly and you no longer need your policy, then selling may be the right choice for you.
2. Gather Information: You’ll need to know details like:
- Your policy’s death benefit
- Your type of policy—term, whole life, or universal life
- The cash surrender value
- If there are any outstanding loans against the policy.
3. Consult a Financial Advisor: Be sure to ask about any potential tax liabilities and how the lump sum cash settlement will fit into your financial plan.
4. Choose a Reputable Life Settlement Broker: Here at Life Settlement Advisors, we offer personalized service while guiding you through the complexities of selling your policy. Benefits of working with Life Settlement Advisors include:
- Clear, straightforward guidance throughout the entire process.
- A wide network of potential buyers, ensuring you get the best possible offer.
- Helpful education and resources to help you understand how life settlements work.
Working with professionals means you’ll be informed at every step—from understanding your policy’s value to completing the sale.
5. Engage with the Process: While your broker will assist you, you’ll still need to participate by doing things like learning about your options, completing an application, or reviewing offers.
6. Choose an Offer and Finalize the Sale: You may receive multiple offers, in which case you’ll need to pick one. Once you’ve selected, you’ll fill out a few documents to transfer the ownership of the policy.
7. Enjoy Your Future: Now, the fun part—you get to use your money however and whenever you want!
Don’t Settle For Less: Partner With the Best
Choosing Life Settlement Advisors means opting for a partner that prioritizes your interests and works diligently to secure the best outcome for you. Whether you’re actively looking for the best life settlement companies or just starting to explore your options, we can help.
After all, selling a life insurance policy is a major financial decision, requiring careful consideration of the pros and cons. You need a trusted advisor by your side through this complicated process. Here at Life Settlement Advisors, we have more than 55+ years of combined experience helping folks secure their financial future. Contact us today and we can help you make an informed choice that aligns with your financial goals and needs.
