selling life insurance involves selling the policy to an investor or the third party. Where the buyer becomes the owner of the policy and needs to pay the premiums on the policy as well as receives the death benefit when you die.
Do you have a life insurance policy? If yes, then Have you ever thought about cancelling your life insurance policy? Or selling your entire life insurance policy for cash?
Well before you cancel your life insurance policy, let us remind you what else can you do with your life insurance policy that can help you recover the cost. Well, you can sell your life insurance policy.
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This will not only help you eliminate the cost of insurance policy but will also give you contact to a lump sum of money that you can use anywhere for your good.
Therefore, if you own a life insurance policy and are willing to sell it off then here, we mention some options that may be available to you to sell your policy:
5 Ways to Sell life Insurance Policy
- Selling your life insurance policy for a viatical settlement
- Selling your life insurance policy for a life settlement
- Accelerate a portion of your policy’s death benefit
- Take out a loan against the policy’s cash value
- Surrender the policy to the insurance company for its cash value.
1. Selling Your Life Insurance Policy for a Viatical Settlement
You can sell your life insurance policy for cash to a viatical settlement company when you are terminally or chronically ill. Thus, those in need of finance health care can opt for this option and sell their life insurance policy.
During a viatical settlement, the company buys the whole insurance policy in one go. Some insurance companies have the provision of accelerated death benefit so that ill individuals are not forced to sell their policies.
Pros:
- You no longer pay policy premiums
- Use money by selling the insurance policy
- You Receive a relatively substantial pay out as compared to the policy you wish to surrender
- Viatical companies are regulated by the NAIC
Cons:
- The death benefit is not received by the Beneficiaries
- The insurance policy is available only when your life expectancy has severely diminished or are chronically ill
- Your life insurance is still active
2. Selling Your Life Insurance Policy for a Life Settlement
Here, the purchaser offers more than what the life insurance policy is offering you when you surrender your life insurance policy, but the amount offered is less than its death benefit. And the purchaser pays the premiums and enjoys the full death benefit on the policy. This selling of insurance policy is termed as a life settlement.
Note: Here, two conditions while selling and purchasing of life insurance policy must be noted down by both the parties that:
- The insurance policy owners have to wait at least two years before they can claim the policy or obtain a life settlement.
- The life settlement provider, as well as the current policy owner, should be resident of the same state to buy and sell the insurance policy.
Pros:
- A relatively substantial pay out is received in comparison to surrendering life insurance policy to the insurance company
- You no longer pay insurance policy premiums
- Use money by selling the insurance policy
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Cons:
- The death benefit is not received by the beneficiary
- To ensure you get a fair price you need to shop around or work with a life settlement broker
- Your life insurance is still active; thus, you can purchase only limited coverage in future.
3. Accelerate a portion of your policy’s death benefit
An accelerated death benefit rider is included in some insurance policies that allow you to withdraw a portion of the policy’s death benefit which you can use according to your needs or wish. By choosing the option of accelerated death benefit rider you cannot receive cash from your policy of life insurance through your beneficiaries can also use your policy.
The amount you are withdrawing from the policy keeps on subtracting from the total death benefit amount of the policy.
Pros:
- Offered on term and permanent life insurance policies
- Trade of policy takes places only with the life insurance company
- Beneficiaries do receive the portion of the death benefit from the policy
- You can use the money as per your needs
Cons:
- This option is available only when your life expectancy has severely diminished
- You ought to pay your policy’s premiums
- It Reduces your beneficiary’s death benefits
4. Taking Out a Loan Against Your Life Insurance Policy
You can even take a loan against your life insurance policy cash value. your life insurance policy will be terminated in case your loan amount plus interest exceeds your policy’s cash value. In case you do not pay the loan back before your death, then the amount of loan taken plus interest is deducted from the total of beneficiary’s death benefit.
Pros:
- Only the life insurance company can offer the loan.
- Loan is confidential
- Loan is tax-free
- While you’re alive the Loan does not have to be paid back
- You own the policy and have control over your insurance policy
- Beneficiaries receive policy’s death benefit
- You can use the money as per your needs
Cons:
- You need to pay your policy’s premiums
- Compounding interest is calculated on the loan
- Loan reduces dividends gained
- Beneficiaries amount is reduced
- The policy can be terminated if aggregate loans and interest exceed the cash value
- When insurance policy terminates you get a tax bill
5. Surrendering Your Life Insurance Policy for Cash
You can surrender your life insurance policy and get cash in return for your policy. Though some insurance companies do not allow cash surrenders until some time frame that is typically 3 years in most of the cases.
There may be a surrender fee that is charged by the insurance companies for surrendering or partial surrender life insurance policy for cash.
Pros:
- No need to pay policy premiums
- only the life insurance company can offer the loan.
- You can use the money as per your own needs
Cons:
- You get cash tax-free which is up to the aggregate amount of premium paid on the insurance policy
- The death benefit is not received by the beneficiaries of the policy
Types of Life Insurance
There exist two types of life insurance policies which are:
- Permanent life insurance
- Term life insurance.
1. Term Life Insurance
Term Life Insurance is life insurance offering coverage at a fixed rate of payments with a period of time. It is often denoted by the word or term “pure life insurance”. This type of life insurance does not provide dependents with a monetary benefit after the death of the insured person.
The time or the length of time for life insurance policy is usually 5, 10, 15 years and so on having 30 or 35 years as the longest time duration of the policy.
2. Permanent Life Insurance
Permanent Life Insurance is a life insurance policy which does not have a set term or length. These policies combine a death benefit with a cash value. So, here you can sell your insurance policy for cash.
This life insurance, the premium payments are higher than the Term Life Insurance.
Who can Sell their Life Insurance Policy?
A life policy can be sold through a life settlement transaction and in return of a cash payment. In all this process it is sold to the third party, who becomes the owner and the beneficiary of the coverage.
Who can’t Sell their Policy for Cash?
When you have a long life expectancy then no one is interested in buying your life insurance policy for cash and then pay the premiums for the next 20 or 30 years. Therefore, some of the cases when your life insurance policy will not have any value are:
- A term policy which does not have any conversion option
- The policy which has a small death benefit
- When you have a long life expectancy
- When you have extremely high
Who Could be Good Candidates for a Life Settlement?
A good candidate to sell their policy for a life settlement may include:
- Someone with age 65 or older
- Under age 65, but have some health issues which could reduce down your life expectancy
- Have a fatal sickness and are younger than 65
- Have a death benefit in your current policy which amounts to $250,000 or more
- Have a permanent policy which could be whole or universal life insurance
- Have some cash value in the policy
- No longer need or want the coverage
How a Life Settlement Works?
Well to sell a life insurance policy? You need to sell your insurance policy to the third party in return for a lump sum of cash. Though, it is a different thing from surrendering or cancelling the policy.
A life settlement also involves selling your insurance policy to the investor, and seller of the policy enjoys higher benefit or value than by the cash surrender value of the policy.
Here, the investor pays the policy’s premiums and become the beneficiary. Therefore, the death benefit proceeds are also paid out to the investor when the insured passes away.
Though, you need to pay income tax on the amount that is over and above the amount of the premiums in your policy.
Advantages of Selling Life Insurance Policy.
- Funds can be used for anything
You can use your funds in your way be it for paying off debt, funding a long-term care need, health insurance or Medicare, etc. These all funds you get by selling life insurance policy now belongs to you and it’s your particular choose to use them.
- No longer having to pay the premium on a policy
You do not need to pay the premiums on the insurance policy when you have sold out your insurance policy.
- Avoid going into debt
You can avoid your debt payment by selling your insurance policy and get cash in return by which you can pay off your debts.
How Can You Qualify to Sell your Life Insurance Policy?
The easiest way to find out your eligibility is by calculating your life settlement. And here we have listed some of the more vital factors to evaluate the value for your life settlement.
- Type of Life Insurance Policy
The Type of Life Insurance Policy choice determines the value of your life settlement as Whole Life, Universal Life and convertible term insurance policies are the best picks for a life settlement.
- Face Value of the Policy
Your life insurance policy which you are willing to sell out for cash must hold a good worth of minimum face value of $50,000 and in some of the cases the net worth or face value it should be minimum of $100,000.
- Age
The widely held ratio of clients who are willing to sell out their policy for cash is 65 years of age or older. Though, in some cases, a younger age person can also qualify.
- Health
The health conditions of the person also determine the value of the life settlement.
10 Reasons for Declined Life Insurance
Your life insurance policy might not get approved or can be declined or terminated depending upon these 10 health measures which are:
- Lipids, Cholesterol and Triglycerides
- Glucose or Blood Sugar Levels
- Elevated liver function.
- Hepatitis
- Positive Alcohol
- Blood or protein in the urine
- Motor Vehicle Report
- Financial Justification
- Obesity
- Previous Denials
Top Reasons People Sell Their Insurance Policy?
1. You Do Not Have A Beneficiary
When you are retired, or your beneficiaries are financially dependent then you or your beneficiaries do not need the life settlement or insurance policy.
2. You Are Over Insured
When you have more than one policy or you as well as your spouse contains a policy with a higher amount then you may no longer need the insurance policies. This indirectly indicates that you are over insured and don’t need the policy.
3. You Can Not Afford the Policy Premiums Any Longer
When you are not able to afford an expensive policy then you opt for selling your policy to get cash as well as eliminate future premium payments.
4. Your Term Policy Is Approaching Expiration Date
When a term life policy is about to end then some decisions are pending on your behalf. You need to make the best choice as possible in consideration to your insurance policy.
5. You Need More Cash Now Than Your Beneficiary Needs Cash Later
You might need money for long-term care, medical bills, or to bolster your retirement income. Therefore, choosing the option to sell your life insurance is the best available option you can consider to get cash in exchange for your policy.
Steps to Sell your Life Insurance Policy
You need to find the right candidate for selling your life insurance policy. And the right candidate would be someone who has or may be:
- Facing serious health challenges
- Someone that has been diagnosed with a terminal illness
- Have an in force term life insurance policy with a conversion option available.
Though there are several steps that you’ll need to follow while selling your life insurance policy for cash, which are:
Step 1: Contact a Life Settlement Specialist
Firstly, you need to contact a life settlement specialist. As with the help of the specialist you can quickly review your insurance policy and determine if the policy qualifies to be sold or not.
Step 2: Submit The Information
When your insurance policy is qualified you need to submit the information, to make the further proceedings to sell your policy.
Step 3: Review of your Medical Records
A review of your medical records is required in order to receive an offer to purchase the policy. The faster you submit the medical records the faster this process of offer letter to purchase will take place.
Step 4: Receiving Offers From Potential Purchasers
When all the above steps are done, as well as your medical records are submitted and checked. You begin to receive offers from potential purchasers.
Step 5: Reviewed the Offer(s)
You need to reviewed the offers, as whom to consider or who is the right candidate to sell your life insurance policy. You and your life settlement specialist review the offers.
Conclusion
If you do not need an insurance policy then check how much is the worth of your life insurance policy. And you can sell policy for cash accordingly based on its net worth. Selling your life insurance policy for cash is wort selling the policy, as the amount can be utilized by the seller as per his needs and requirements.