Did you know you can sell all or a portion of a life insurance policy, even term insurance?
(3 minute read)
For some people, selling a life insurance policy that no longer fits their needs is a good financial option. If you choose the route of selling a life insurance policy, you will be selling it to a life settlement provider. These are companies that purchase life insurance policies from policyholders. Most providers buy policies on behalf of their investors or other financial institutions, and some keep them as an internal investment. When deciding to sell a life insurance policy, you want to make sure you know the best company to sell your life insurance policy to.
Benefits to the Buyer
We’ve gone over the general idea of who may be buying a life insurance policy, now let’s touch on the why. The policy owner gets a lump sum payment when they sell their policy, but what’s in it for the person who buys life insurance policies? Buying life insurance policies is considered a stable investment with predictable returns, and so is desirable for some investment portfolios.
When an investor purchases a life insurance policy, they pay less than the death benefit (but significantly more than the policy owner would get from surrendering the policy) and become the beneficiaries. They continue to pay the policy’s premiums, and after the death of the original policy owner, that investor receives the death benefit payment. For example, if an investor purchases a $750,000 policy for $150,000, the $600,000 difference is the potential return on their investment. The negatives to them are that they will continue to make payments on the policy until the original policy owner’s death, which represents an unknown cost, and there is the possibility that the life insurance company could go bankrupt or refuse to pay for some other reason, although this is very uncommon.
Direct Buyer vs Broker
Because selling a life insurance policy is such an important and highly-regulated process, there are usually multiple people involved other than just one person selling their policy and one person buying it. An important distinction to make is between the direct buyer (maybe the life settlement provider, maybe not) and a life settlement broker.
The life settlement broker is not the one buying the life insurance policy, but rather is representing the seller. Because of the complex nature of life insurance beneficiary rules and other regulations, working with a broker with specialized knowledge can ensure you get fair market value for your life settlement. In cases where the life settlement provider is not the direct buyer, they represent the buyer in the same fashion.
Do Life Insurance Companies Buy Back Policies?
Let’s look at another group that people often think about as buying life insurance policies – the life insurance company itself. There are some cases when the life insurance company that issued the policy will pay money to a policy owner in exchange for the policy. However, it’s not exactly “buying back” and not the same process as a life settlement. Here are 2 examples of when that might happen:
Cash Surrender Values
Some insurance policies may have a cash surrender value, if premiums have been paid into them for a significant enough amount of time. This will depend on the specific life insurance policy. There will be substantial fees from the insurance company associated with surrendering an account, and the amount possible from a life settlement is often at least 4 times higher than a potential cash surrender value.
Return-of-Premium Term Policies
This specific type of policy does include your insurance company paying back the premiums you paid in. These return-of-premium term policies (or riders added to a regular term policy) are advertised as such when you originally purchase them. If you have purchased this specific kind of policy and outlive the term, the insurance company will pay back the amount you paid them in premiums, without interest. This amount is not taxable, since it is just returning the money you paid back to you.
Policy Owner’s Check List
There are many places online that have a list of companies that buy life insurance policies. But choosing a company to work with for such a complex transaction should be more than just picking off a list. We believe that the best companies that buy life insurance policies are going to have several very important qualities that you need to be looking for. We’re going to give you that list of qualities instead, so you are empowered to choose the provider who will do the best job for you.
- Education Services – helping customers understand exactly what their options are
- Experience – enough times going through the process to really do it well
- Reputation – testimonials from clients and word of mouth support for their skill
- Efficiency – move through the process efficiently to get results in a timely manner
- Transparency – show all their processes along the way so a client really knows what’s happening
- Responsiveness – responds to questions quickly and thoroughly
- Free Consultation – they don’t get paid until the work is done
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.
Life Settlement Advisors