Selling Your Personal Life Insurance Contract: Is It Possible?

Life insurance is a long-term financial commitment, but if you're unable to pay the premiums or no longer need coverage, you can sell your policy. This is called a life settlement, and it involves selling your life insurance policy to a third party or life settlement provider, who will pay you a lump sum and take over as the owner of your policy. The buyer will then cover any future premium payments and receive the death benefit when you pass away, instead of your heirs.

The amount you receive for a life settlement depends on your age, health, and type of policy. You will usually need to be over 65 and have a permanent life insurance policy to be eligible.

How to sell your life insurance policy

Yes, you can sell your life insurance policy. This is known as a life settlement or viatical settlement.

• Find a buyer: Research the life settlement industry to find a licensed life settlement provider.
• Check qualifications: To sell your life insurance policy, you will generally need to meet certain minimum requirements. These include owning a policy with a death benefit of at least $50,000 to $100,000, and being over the age of 60 or 70.
• Complete a health questionnaire: If you meet the basic qualifications, you will then need to complete a detailed health questionnaire.
• Provide authorisations: The insured and the policy owner will need to authorise the life settlement provider to access medical records and contact the insurance company.
• Share policy details: You will need to provide a copy of the policy contract and a premium illustration.
• Wait for underwriting: The life settlement company will then evaluate your policy and medical records to determine its value.
• Review offer: Once the company has all the necessary information, they will make you an offer. You can accept or decline the offer, or compare offers from multiple companies.
• Complete the closing process: 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 ownership of the policy will change. The settlement funds will be released once the transaction is verified.

Additional Considerations:

• The process of selling a life insurance policy usually takes between 60 and 120 days.
• You may be able to get a higher price for your policy if you have health conditions that lower your life expectancy.
• Selling your life insurance policy will mean that your family will not receive the death benefit.
• The money from selling your policy may be subject to taxes and may affect your eligibility for financial assistance programs.
• You can only sell your life insurance policy once, so it is worth taking the time to compare offers and ensure you get the best price.
• You may want to consult a financial advisor or tax expert before selling your policy.

What is a life settlement

A life settlement is a way to get money for your unwanted life insurance policy. It involves selling an existing life insurance policy to a third party—a person or an entity other than the company that issued the policy. This transaction is for a one-time cash payment that is more than the surrender value but less than the actual death benefit. The third party, or life settlement provider, becomes the new owner and beneficiary of the policy and assumes payment of its premiums. They will also receive the death benefit when the insured dies.

The life settlement provider will pay you a lump sum for your policy, which will depend on a range of factors, including your age, health, and policy terms and conditions. The amount is generally more than the policy's cash surrender value and less than the net death benefit.

The process of selling your life insurance policy usually involves the following steps:

• Find an experienced life settlement provider.
• Meet the qualifying factors, such as owning a policy with a death benefit of $100,000 or more and being over the age of 60.
• Take a detailed health questionnaire.
• Provide the provider with authorization to access your medical records and contact your insurance company.
• Share your policy details with the life settlement provider, including a copy of the policy contract and a premium illustration.
• Wait for the underwriting process to be completed, where the provider evaluates your policy and medical records to determine its value.
• Receive an offer from the settlement company, which you can accept or decline.
• Complete the closing process, which involves signing documents to transfer ownership of the policy and receiving the settlement funds.

It's important to note that selling a life insurance policy has potential legal and financial implications. The money gained from the sale may be subject to taxes and debt collection, and it may affect your eligibility for certain public assistance programs. It's recommended to consult a financial advisor, attorney, or accountant to determine if selling your life insurance policy is the best option for your situation.

Pros and cons of selling your life insurance policy

Pros of selling your life insurance policy:

• You will receive a lump sum of cash, which can be used to cover unexpected expenses, supplement retirement income, or pay off debts.
• You will no longer have to pay expensive premiums, which can be beneficial if you can no longer afford them or if your financial situation has changed.
• You can recoup some of the money you have invested in the policy over the years, rather than letting it go to the insurance company as profit if you lapse a term policy.
• You can free up money that you need now, rather than waiting until later.
• You can eliminate the policy from your financial obligations and reduce stress.

Cons of selling your life insurance policy:

• Your beneficiaries will no longer receive the death benefit associated with the policy, which could reduce their inheritance and impact their financial security.
• There may be tax implications, and you may have to pay taxes on any profits made from the sale.
• You may lose eligibility for certain financial assistance programs, such as Medicaid.
• There is a potential risk to your privacy as your medical information may be shared with multiple investors.
• You will need to pay fees or commissions to brokers, which can be as high as 20-30% of the purchase price.
• It can be difficult to find the right buyer for your specific policy, and the process may be time-consuming and complex.

How much money can you get for your life insurance policy?

The amount of money you can get for your life insurance policy depends on several factors, and there is no standard formula to predict the exact figure. However, according to the Life Insurance Settlement Association (LISA), the average life settlement is around 20% of the policy's face value. This means that if your policy has a death benefit of $100,000, you might receive approximately $20,000 by selling it.

Life settlement companies consider various factors when determining their offers, including:

• Policy premiums: Lower premiums and a shorter payment history will result in a higher offer.
• Death benefit: The higher the death benefit and the older you are, the more attractive the offer will be.
• Health condition: A health condition that reduces your life expectancy can lead to a higher offer.

Additionally, the type of policy you own also matters. Whole or universal life insurance policies that have accumulated cash value can be attractive to buyers, as they provide more flexibility in terms of cashing out.

When considering selling your life insurance policy, it is recommended to obtain offers from at least three companies to ensure you get the best deal. It is also important to be aware of the potential tax implications and how the sale may affect your eligibility for financial assistance programs.

What to ask before you sell your life insurance policy

Selling your life insurance policy can be a great way to get money for an unwanted policy, but there are a few things you should ask and consider before making a decision. Here are some key questions to ask and factors to keep in mind:

• Can you sell your policy? Not all policies are eligible for sale. Generally, you can sell both term and permanent life insurance policies, but there are age and health requirements to meet. You need to be the owner of the policy and meet certain criteria, such as being 65 or older or having a serious illness.
• How much is your policy worth? The value of your policy will depend on various factors, including your age, health status, the premiums you're paying, and the policy's death benefit. The older you are and the lower your life expectancy, the higher the offer is likely to be.
• What are the tax implications? The payment you receive from selling your policy may be subject to taxes as income or capital gains. Consult a licensed tax attorney or financial advisor to understand the specific tax consequences.
• What about fees and commissions? If you engage a broker or settlement company to help with the sale, they will take a significant cut of the proceeds, typically around 20-30% of the purchase price.
• How will the sale impact your beneficiaries? Selling your policy could reduce or eliminate the inheritance for your beneficiaries and impact their financial security. It's important to consider their needs and how the sale might affect your estate planning.
• Are there alternatives to selling? Before selling, explore other options such as policy loans, partial surrender, accelerated death benefits, conversion to a paid-up policy, or coverage reduction. These alternatives can provide access to cash while maintaining some level of life insurance protection for your beneficiaries.
• Have you compared offers? Don't settle for the first offer. Reach out to multiple life settlement companies and compare their offers to get the best value for your policy.
• Is the settlement company licensed? Life settlements are regulated by states, so check with your state insurance department to verify the company's license and ensure they are authorized to operate in your state.
• What are the potential risks? Selling your policy may result in losing access to the cash value, impacting your eligibility for financial assistance programs, and exposing your proceeds to creditors. Carefully weigh the risks and benefits before making a decision.
• Do you understand the process? Familiarize yourself with the steps involved in selling your policy, including finding a buyer, meeting qualifying factors, providing authorizations, sharing policy details, and completing the closing process.

Remember, selling your life insurance policy is a significant decision that can have financial and legal implications. Take your time, do your research, and seek professional advice to ensure you make the best choice for your situation.

Frequently asked questions