Selling Life Insurance At 33: Is It Possible?

Life insurance is a financial safety net that protects your beneficiaries from financial struggles in the event of your passing. However, there may come a time when you no longer need or want your life insurance policy. While you can cancel your policy, another option is to sell it.

A life insurance policy is an asset that you own, and as a policyholder, you can cash out your life insurance policy for a payout. Companies that buy life insurance policies are called life settlement companies. Life settlement companies are mainly interested in buying high-value policies from older policyholders. You’ll probably need to have a policy worth at least $100,000 and be over the age of 65 to sell your policy.

There are two main ways of selling your life insurance policy: life settlements and viatical settlements. With both options, you sell your insurance policy to a third-party buyer in exchange for a lump-sum cash payment. The buyer then takes over the responsibility of paying the premiums on the policy and becomes the new beneficiary of the policy’s payout.

Life insurance as an asset

Life insurance is often thought of as a way to provide financial stability for your family and beneficiaries after you pass away. However, it can also be a financial asset during your lifetime. While the death benefit of a life insurance policy is not considered an asset, some policies have a cash value, which is considered an asset. This cash value is a secondary benefit of life insurance that can be used to help with liquidity and estate planning.

Permanent life insurance policies, such as whole life and universal life insurance, are the most common types of policies that can build cash value. These policies allow the policyholder to invest in conservative investments and accumulate cash value over time. The cash value can be accessed in several ways, such as taking a loan from the policy, using it as collateral for a loan, or withdrawing funds. It is important to note that accessing the cash value may reduce the death benefit and available cash surrender value and may incur surrender charges.

When deciding whether to use life insurance as an asset, it is essential to consider your financial goals and alternatives. Selling your life insurance policy can provide a cash payout, but it also means losing the death benefit for your family and may have tax implications. Other options include using the cash value of the policy, converting to a whole life insurance policy, seeking an accelerated death benefit, or adjusting the death benefit.

In conclusion, life insurance can be an asset during your lifetime, providing financial flexibility and security. However, it is important to carefully consider the potential benefits and drawbacks before making any decisions regarding your life insurance policy.

Life settlement companies

When you sell your policy, the life settlement company will pay you a lump sum that is more than the policy's cash surrender value but less than the net death benefit. They will also take over paying your premiums in exchange for becoming the beneficiary of the policy.

It is important to research the purchasers of life settlements to see if they are regulated and required to be licensed. In the state of Texas, for example, life settlement companies must be licensed with the Texas Department of Insurance.

Before selling your life insurance policy, it is recommended that you gather offers from at least three companies to ensure you get the best offer. You can also use a licensed life settlement broker to negotiate with companies on your behalf, although they will charge a fee or commission.

Pros and cons of selling a life insurance policy

Pros of selling a life insurance policy:

• You can get a large sum of cash, which can be used for anything, including retirement savings, medical bills, or a memorable vacation.
• You no longer have to pay monthly premiums, which can be beneficial if you can no longer afford them or if they are increasing as you get older.
• The payout from selling your policy is often higher than the cash surrender value if you were to let the policy lapse or surrender it.
• If you no longer need your life insurance policy, selling it can provide a profit.
• If you are facing a terminal illness, selling your policy can provide financial relief during challenging times.

Cons of selling a life insurance policy:

• Your beneficiaries will not receive a death benefit when you pass away, which could reduce their financial security and disrupt your estate plans.
• You may have to pay taxes on the money you get from the sale, and it may disqualify you from certain public assistance programs such as Medicaid.
• You may have to pay broker fees and commissions, which can be as high as 30% of the purchase price.
• It can be difficult to find the right buyer for your policy, even with the help of a broker.
• You may not qualify for another life insurance policy in the future if you sell your current one.

Selling a life insurance policy vs surrendering it

If you no longer want or need your life insurance policy, you can either surrender it or sell it. Surrendering your policy means cancelling it and receiving a payout from your insurance provider, whereas selling your policy means exchanging it for a cash payout from a third-party buyer.

Surrendering a life insurance policy

When you surrender a life insurance policy, your insurance provider will terminate your coverage and send you a cheque for the policy's cash surrender value. This is the money a policyholder receives for ending their coverage before the maturity date or before they pass away. The cash surrender value is the total sum in the savings component of permanent policies, minus surrender fees and taxes on earnings. Surrender fees typically range from 10-35% and are usually high in the early years of the policy. Most policies also have a waiting period of at least 15 years before you have the option to surrender.

Selling a life insurance policy

Selling your life insurance policy is also known as a life or viatical settlement. You will receive a cash payout and will no longer be responsible for paying insurance premiums. Upon your death, the buyer collects the death benefit associated with your policy. Your policy's value on the secondary market is always more than its cash surrender value — five times more on average, according to a survey by LISA. In some cases, the sales price can be as high as 60% of the policy's death benefit.

Reasons to surrender or sell your life insurance policy

There are several reasons why you might want to surrender or sell your life insurance policy:

• You no longer need coverage
• You can no longer afford the premiums
• You've found a better policy
• You need a large amount of cash quickly
• Your children are now grown up and financially independent

Pros and cons of surrendering your life insurance policy

• Surrendering your policy is a simple and quick process
• You'll get some money back
• You'll only get one offer from the insurance company, and it will be a low offer
• You'll have to pay surrender fees of up to 35%
• There's no room to negotiate

Pros and cons of selling your life insurance policy

• You'll get a much higher payout than if you surrendered your policy
• You can seek multiple offers and negotiate
• It's a more complex process than surrendering
• You'll lose access to the cash value of your policy
• Your family won't receive the death benefit when you die

In most cases, it's better to sell your life insurance policy than to surrender it, as you'll get a much higher payout. However, selling your policy has more serious implications, as your family won't receive the death benefit when you die. You should carefully consider your options and, if possible, speak to a financial advisor or estate planning attorney before making a decision.

Eligibility requirements for selling a life insurance policy

Selling a life insurance policy is an option for many policyholders, but eligibility depends on several factors. Here are the key requirements to sell your life insurance policy:

• Age or Health Status: In most cases, you need to be 65 or older to sell your life insurance policy. However, there may be exceptions if you have a serious medical condition or terminal illness that reduces your life expectancy.
• Policy Ownership: You can only sell a policy if you are both the policy owner and the named insured. If you took out a policy on someone else, such as your child, you may not be able to sell it.
• Policy Type: The policy must be individual life insurance, not group life insurance. Additionally, it should have a death benefit of at least $100,000 to be eligible for sale.
• Convertibility: If you have a term life insurance policy, it must be convertible to permanent insurance to be sold. Many policies have such convertibility, but it may be time-limited, such as within the first five years of owning the policy.
• Policy Details: Familiarize yourself with the specific details of your policy, including the coverage, type of policy, and any cash value it may have. Contact your insurer if you need clarification.
• State Regulations: Check your state's insurance authority website for information on the regulations, licensing requirements, and potential scams related to selling life insurance policies in your state.
• Broker or Agent: Consider using a licensed life settlement broker or life insurance agent to guide you through the process and handle negotiations. They can help you navigate the complexities and ensure you meet all the eligibility requirements.

It's important to carefully review these eligibility requirements and consult with professionals before proceeding with the sale of your life insurance policy.

Frequently asked questions