Did you know you can sell all or a portion of a life insurance policy, even term insurance?
(2 minute read)
When someone is considering selling a life insurance policy in a life settlement, they are usually curious about the pros and cons of the decision. Some frequently asked questions include:
- How much do you get for selling a life insurance policy?
- Do I have to pay taxes if I sell my life insurance policy?
- Is it possible to take a loss on the sale of a life insurance policy?
If you’re wondering about some of these questions or others, you’ve come to the right place. Let’s review the pros and cons of selling a life insurance policy in a life settlement.
Is It Worth Selling Your Life Insurance Policy?
Selling a life insurance policy in a life settlement is often worth it for those who qualify. In many cases, policyholders are considering a sale because they no longer want or need the policy. In those cases, the policyholder can choose between the option of a life settlement or surrendering the life insurance policy. Surrendering the policy back to the issuer usually means settling for cents on the dollar, even when the policy has been held for years. In fact, the average surrender value of a life insurance policy is only $460 for every $100,000 in value. This means even if you have been paying into a million-dollar life insurance policy for years, you may only get a return of around $4600.
A life settlement, by contrast, often nets at least a 20% return on the death benefit of the policy. That means for the same million-dollar policy, you would get $200,000. In short, selling your life insurance policy, even term insurance, in a life settlement is usually a far better move than surrendering it back to the insurance company!
Cons of Selling a Life Insurance Policy for Cash
While there are not many cons to a life settlement, one that is top of mind for many individuals is the question of taxes. Whether you surrender or sell the policy, you will have to pay taxes on any amount you earn that exceeds the premiums you have paid. For instance, if you have paid $25,000 in premiums over the lifetime of the policy, and get $30,000 in a life settlement, you would have to pay taxes on $5,000.
While the greater returns that are earned through a life settlement may have you concerned about tax liability, remember that working with a financial advisor or another professional can help you manage expenses to minimize liability and reduce necessary payments at tax time.
Another con of selling a life insurance policy in a life settlement is that your heirs will not receive the death benefit. This is why Life Settlement Advisors thinks it is so important to educate policyholders that it is possible to sell only a portion of a policy in a life settlement. That means the option to earn money on some of the policy’s face value while also retaining the benefits for family or other loved ones.
Find Out if You Qualify for a Life Settlement
People over the age of 65 who no longer want or need a life insurance policy may wonder if they qualify to sell a life insurance policy in a life settlement. That’s why we created our life settlement calculator, to help policyholders make informed decisions about their assets and financial future. Or check out some of our life settlement success stories from 2020, to learn more about how others have used this transaction to transform their lives and fund their futures, even during times of economic crisis.
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.
Life Settlement Advisors