Term Life Insurance: Strategies For Effective Sales And Marketing

Selling a term life insurance policy is known as a life settlement. This is when a policyholder sells their policy to a third-party company for a cash lump sum. The third-party company then takes ownership of the policy and is responsible for paying the premiums. When the original policyholder dies, the third-party company receives the death benefit. Life settlements are usually reserved for senior-aged individuals with serious health issues.

How to sell your term life insurance policy

Selling your term life insurance policy is a big decision and should be done only after careful consideration. Term life insurance is a type of insurance that provides coverage for a specific period, usually between 5 and 30 years. If the insured passes away within this period, the policy provides a death benefit to the policyowner. However, if the insured outlives the term, the policy expires and has no value.

• Determine if your policy is convertible: The first step is to check if your term policy can be converted into a permanent or whole life insurance policy. This is important because permanent insurance policies generally sell for more than term policies. Review your policy documents carefully to see if there is a conversion rider or contact your insurance carrier for more information.
• Contact a life settlement company: If your policy is convertible, the next step is to get in touch with a life settlement company. They will handle most of the work for you, including contacting your insurance carrier, requesting necessary documents, and identifying potential investors.
• Sign the necessary paperwork: If a buyer is found, the life settlement company will make you an offer. If you accept the offer, you will need to sign the necessary paperwork to finalise the transaction and transfer ownership of the policy.
• Receive the lump-sum payment: Once the paperwork is completed and signed, the buyer will become the new policy owner, and you will receive a lump-sum cash payment.

It is important to keep in mind that selling your term life insurance policy has several implications. Firstly, your beneficiaries will no longer receive the death benefit after you sell the policy. Secondly, you may have to pay taxes on the proceeds from the sale. Finally, selling your policy is a permanent decision, and you will no longer have coverage. Therefore, it is recommended to consult a financial advisor before making any decisions.

Who buys term life insurance policies?

Life insurance policies are personal property, and as such, the policyholder has the right to sell their policy. There are two main types of companies that purchase life insurance policies: life settlement companies and viatical settlement companies.

Life settlement companies typically purchase policies from seniors who no longer need their life insurance policies. Seniors can qualify for a life settlement if they are over 70 years old and/or have health impairments that affect life expectancy. Additionally, those aged 65 or older may also be eligible to sell their life insurance policies.

Viatical settlement companies, on the other hand, work with individuals who have been diagnosed with a life-threatening or chronic illness and have a reduced life expectancy. There are no age requirements to qualify for a viatical settlement.

People choose to sell their life insurance policies for various reasons. Some common reasons include:

• High medical expenses
• Divorce
• Change in financial circumstances
• No longer needing the policy
• Inability to afford premiums
• Boosting retirement funds
• Gifting inheritance money to children or grandchildren

How much can you sell a term life insurance policy for?

The amount you can get for selling a term life insurance policy depends on several factors, including the policyholder's age, health condition, policy value, policy carrier, and the current market conditions for life settlements.

The older you are and the more severe your health issues are, the more attractive your policy is to buyers, as they will be expecting to collect the death benefit sooner.

According to a study by the London Business School, policyholders who sell their policy in a life settlement transaction generally receive on average four times more cash than they would get by surrendering their policy. The LISA 2023 Market Data Collection Survey reports the average life settlement value is $262,000.

If you have a terminal illness, you may be able to sell your term life insurance policy for a higher amount. This is known as a viatical settlement, and most states follow specific guidelines that determine how much you can receive based on your life expectancy.

It's advisable to consult with a life settlement provider who can evaluate your specific policy and provide an estimate of the potential cash payout.

How to sell a term life insurance policy

Selling a term life insurance policy is a big decision and should not be taken lightly. Term life insurance is a type of insurance that provides coverage for a specific period, usually between 5 and 30 years. It is important to understand the process and the implications of selling your policy. Here is a step-by-step guide on how to sell a term life insurance policy:

Step 1: Determine If Your Policy Is Convertible

The first step is to check if your term life insurance policy can be converted into a permanent policy. This is important because permanent insurance policies, such as whole or universal life policies, tend to sell for more than term policies. Review your policy documents carefully or contact your insurance carrier to determine if your policy can be converted. Some term policies may have a conversion rider, which allows them to be converted to a permanent policy.

Step 2: Contact a Life Settlement Company

If you decide to sell your policy, you will need to work with a life settlement company. They will handle most of the process for you. The company will contact your insurance carrier to obtain the necessary documents and request medical records (with your written consent). They will then underwrite the policy sale and identify potential institutional investors interested in acquiring your specific policy.

Step 3: Review the Offer

Once the life settlement company has all the necessary information, they will make an offer to purchase your policy. It is important to review this offer carefully and understand the terms and conditions. You can also compare offers from multiple companies to ensure you get the best deal.

Step 4: Finalize the Transaction

If you accept the offer, you will need to sign the necessary paperwork to transfer ownership of the policy. The life settlement company will assist you in this process. Once the paperwork is completed, you will receive a lump sum cash payment, and the buyer becomes the new owner of the policy.

Step 5: Understand the Implications

Selling your term life insurance policy has several implications that you should be aware of. Firstly, your beneficiaries will no longer receive the death benefit after you sell the policy. Secondly, there may be tax implications, as the proceeds from the sale may be subject to income tax if they exceed the amount you have paid into the policy through premiums. Finally, selling your policy is a permanent decision, and you cannot change your mind after the sale is complete.

Step 6: Consult a Professional

Before making any final decisions, it is highly recommended to consult with a financial advisor or tax consultant to ensure that selling your policy aligns with your financial goals and that you understand any tax implications. Additionally, working with a reputable broker or settlement provider can help guide you through the process and ensure you make a well-informed decision.

Pros and cons of selling your term life insurance policy

Pros of selling your term life insurance policy:

• You will receive immediate cash that can be used to pay off debts or for investments.
• You will get more money for your policy than if you let it lapse or surrender it.
• You can get rid of a policy you don't need and stop paying premiums.
• You can recoup money you've paid in.

Cons of selling your term life insurance policy:

• Your family won't receive your death benefit.
• You may not be able to take out another life insurance policy in the future.
• You may owe taxes on your life settlement proceeds.
• Policies that are not convertible may be slow to sell or require significant discounts.
• There may be fees and commissions to pay.
• You may lose eligibility for financial assistance.

Frequently asked questions