Bad Credit: Can You Still Sell Life Insurance?

Selling life insurance is a challenging way to make a living, with some analysts reporting agent burnout within a year. Life insurance agents are typically paid on commission and must find their own leads in a competitive market. While it can be relatively easy to find jobs selling life insurance, the product itself is hard to sell. People are reluctant to discuss their mortality, and life insurance does not offer the instant gratification that leads to impulse purchases. However, some people view selling life insurance as a good career path due to the high commission percentages and passive income potential.

Can I sell my life insurance policy?

Yes, you can sell your life insurance policy. A life insurance policy is your personal property, so you can sell it like anything else you own. However, there are a few things to keep in mind.

Firstly, companies that buy life insurance policies are called life settlement companies, and they must be licensed. For example, in Texas, they must be licensed with the Texas Department of Insurance, and you can check a company's license by calling 800-252-3439. As with any financial transaction, beware of scams.

Life settlement companies are mainly interested in buying high-value policies from older policyholders. You will probably need to be over the age of 65 and have a policy worth at least $100,000 to sell your policy. The life settlement company will pay more if you have a health condition that reduces your life expectancy.

When you sell your policy, the life settlement company will take over the payments and receive the death benefit when you die, so your family won't get the life insurance benefits. You might also have to pay taxes on the money you get from the sale, and it might disqualify you from getting Medicaid or other public assistance. Therefore, it is recommended that you gather offers from at least three companies before selling your policy and consider the broader impact of selling it.

You can sell your policy by either using a broker or shopping and comparing on your own. A licensed life settlement broker can answer your questions, look out for your interests, pull quotes, and handle negotiations, but they will charge for the service. If you choose to shop and compare on your own, you can start by familiarizing yourself with life settlement transactions and associated regulations and checking with your state's insurance authority for more information.

The process of selling your policy will typically involve the following steps:

• Application: Complete an application for each life insurance settlement and grant the settlement company permission to obtain information about your policy and health.
• Documentation: The settlement company underwriters will gather information about your policy and request a copy of your medical records.
• Appraisal: The underwriters will determine the market value of your policy based on its value and the opinion of medical experts regarding your health.
• Offer: If your policy is deemed suitable for purchase, the settlement company will make an offer, which you can accept or decline. It is recommended to compare offers from multiple companies before deciding.
• Closing: If you accept the offer, the settlement provider will send a closing package for you to review and sign. Once you return the signed documents, your insurance provider will be notified of the transaction, and you will receive the settlement funds.

This process typically takes between 60 and 120 days, depending on how quickly third parties respond to requests for information.

Alternatives to selling your life insurance policy

• Use the cash value of the policy: If you have a whole or universal life insurance policy, you can withdraw from or borrow against the policy's cash value.
• Convert to a whole life insurance policy: If you have a convertible term policy, you may be able to convert it to whole life insurance, which will provide lifelong coverage and potentially build cash value.
• Seek an accelerated death benefit: If you are diagnosed with a terminal illness, some policies will allow you to receive a portion or all of the death benefit in advance.
• Change the beneficiary: You can change the beneficiary of your policy if none of your loved ones rely on your income.
• Reduce the death benefit: Lowering the death benefit can help reduce the cost of your policy.
• Replace your policy: You may be able to find a new policy that better aligns with your financial goals.
• Surrender your policy: You can surrender your policy and receive the cash surrender value, although you will likely get more money by selling it.

How do I sell my life insurance policy?

Selling your life insurance policy is a way to make money, but it's important to be aware of the potential drawbacks, such as tax implications and the loss of the death benefit for your family. Here is a step-by-step guide on how to sell your life insurance policy:

• Decide whether to use a broker: You can choose to work with a licensed life settlement broker who will answer your questions, look out for your interests, pull quotes, and handle negotiations. Alternatively, you can shop and compare on your own to avoid broker fees.
• Application: Complete an application for each life insurance settlement from which you want to solicit offers. As part of the process, you must grant the settlement company permission to obtain information about your policy and health.
• Documentation: Submit your application and grant the necessary permissions. The settlement company underwriters will then gather information by contacting your life insurance provider and healthcare providers.
• Appraisal: Underwriters will review the relevant information and determine the market value of your life insurance policy. They will consider the value and your health to decide if your policy is a good investment. They will also look for signs of fraud.
• Offer: If your policy is suitable for purchase, the settlement company will make an offer. You can accept or decline, and it is recommended to compare offers from multiple companies before making a final decision.
• Closing: If you accept the offer, the settlement provider will send a closing package for you to review and sign. Once the signed documents are returned, your insurance provider will be notified of the transaction, and you will receive the settlement funds.

The entire process will likely take between 60 and 120 days, depending on how quickly third parties respond to information requests. Remember that selling a life insurance policy requires the cooperation of both the policy owner and the insured person.

Factors Affecting Your Payout:

• Policy's premiums: Lower premiums and less time spent paying them will benefit the company and result in a higher offer.
• Death benefit: The higher the death benefit, the higher the offer will be.
• Age: Older individuals will generally receive higher offers than younger ones.
• Health condition: A health condition that reduces life expectancy will result in a higher offer.

What are the pros and cons of selling my life insurance policy?

Selling your life insurance policy can be a good option if you need cash quickly, can no longer afford the premiums, or no longer need the policy. However, there are some important considerations to keep in mind before making a decision. Here are the pros and cons of selling your life insurance policy:

Pros:

• No more monthly premiums: When you sell your life insurance policy, the new owner will take over the responsibility of paying the premiums, which can be a significant expense, especially as you get older.
• Higher payout than surrendering or lapsing: Selling your life insurance policy can provide a significant payout that is above the cash surrender value. On average, life settlement proceeds are four times the cash surrender value.
• Use the proceeds for anything: With a life settlement, you are free to use the cash proceeds as you wish. There are no restrictions on what you can purchase or how you use the money.
• Life situations change: As you grow older, your life situations may change. For example, your beneficiary may no longer be alive, or your adult children may be financially independent. In such cases, you may not need the life insurance policy as much as you need cash for retirement, healthcare costs, or long-term care.

Cons:

• Tax implications: The proceeds from selling your life insurance policy may be subject to taxes, depending on your individual circumstances. It is important to work with a tax specialist to understand the tax implications before making a decision.
• Reduced or no death benefit for beneficiaries: When you sell your life insurance policy, your beneficiaries may receive a reduced death benefit or no payout at all upon your passing. The life settlement company will take over as the beneficiary and receive the death benefit instead.
• May not qualify for another life insurance policy: Selling your current life insurance policy may make it more difficult to purchase another life insurance policy in the future. Before selling your current policy, consider whether you may need life insurance coverage in the future.
• Finding the right buyer can be challenging: Even with the help of a broker, finding the right buyer for your specific policy can be a challenging and time-consuming process.
• Broker fees and taxes: In addition to the taxes on the sale, you will also need to pay broker fees, which can be significant.
• Impact on beneficiaries: Selling your life insurance policy can have multiple effects on your beneficiaries, including reduced inheritance, financial insecurity, and altered estate plans.

What are the alternatives to selling my life insurance policy?

If you no longer need your life insurance policy, there are several alternatives to selling it. Here are some options to consider:

• Using the cash value of the policy: Whole and universal life insurance policies have both a face value and a cash value. Once the cash value reaches a certain threshold, you can withdraw from it or borrow against the policy. This will reduce the policy's death benefit unless you repay the money. Alternatively, you can use the excess cash value to cover your premium payments.
• Converting to a whole life insurance policy: Convertible term policies allow policyholders to convert to whole life insurance, usually without needing a new medical exam. Whole life insurance premiums are higher but remain constant for the rest of your life, and the policy accumulates a cash value that you can use during your lifetime.
• Seeking an accelerated death benefit: Some policies include an accelerated death benefit provision, where the life insurance company will prepay some or all of the death benefit if the insured is diagnosed with a terminal illness. The specific diagnoses that trigger this provision may vary from one company to another.
• Changing the beneficiary: You can change the beneficiary of your term or permanent life insurance policy as needed. If none of your loved ones rely on your income, you can consider using your policy as a gift, legacy donation, or charitable contribution by naming a nonprofit, university, or other organization as the beneficiary.
• Reducing the death benefit: Lowering the death benefit is one way to reduce the cost of life insurance. Ask your insurance agent if this is an option for your policy.
• Replacing your policy: If your current life insurance policy no longer aligns with your financial goals, consider replacing it with a new one. For example, you could replace a term life insurance policy with whole, universal, or variable life insurance to take advantage of the cash value benefits.
• Surrendering the policy: You can surrender a life insurance policy you no longer want to your insurer. Many permanent life insurance policies have a cash surrender value. However, selling your policy will usually result in a higher payout than simply surrendering it.

Before making any decisions, it is recommended that you speak with a financial advisor or estate planning attorney to understand the legal and financial implications for both you and your heirs.

How much can I sell my life insurance policy for?

A life insurance policy is your personal property, so you can sell it just like anything else you own. The amount of money you can get for your life insurance policy depends on several factors, including your policy's premiums, its death benefit, your age, and your health.

Life settlement companies base their offers on many of the same factors that life insurance companies use to determine your premiums. However, factors that work against you when buying a policy often work in your favour when selling it. That's because life insurance and life settlement companies have opposing interests. The former will pay the death benefit, while the latter hopes to receive it.

According to the Life Insurance Settlement Association (LISA), the average life settlement is 20% of the policy's face value. So, if your policy has a $100,000 benefit, you might receive $20,000 from selling it. However, this is only an average, and the amount you receive will depend on your specific circumstances.

Most life settlement companies look for policies worth at least $100,000 covering people aged 65 and older. The older you are and the higher your death benefit, the higher the offer will be. If you have a health condition that reduces your life expectancy, the offer will be even higher. On the other hand, high premiums will negatively impact your offer.

It's important to note that selling your life insurance policy has several implications. You will lose access to the cash value of your policy, and your family will not receive the death benefit when you die. Additionally, the money you gain from the sale may be subject to taxes and debt collection, and it may affect your eligibility for certain public assistance programs, such as Medicaid.

Frequently asked questions