A universal life insurance policy can be a valuable tool for retirement planning, as it accumulates cash value over time and can provide a death benefit to help beneficiaries after you pass away. However, things can change over the course of a lifetime and you may find that the policy is unaffordable or no longer needed. In this scenario, you can sell your universal life insurance policy through a life settlement or viatical settlement.
If you’re considering selling your universal life insurance policy, we’ll explain the process and show you how to find the value of your policy.
Reasons for selling your universal life insurance policy
People choose to sell their universal life insurance policies for many reasons. You may wish to sell the policy because the premiums have become unaffordable in retirement, especially if you’re living on a limited income. It’s also possible that you no longer need life insurance once beneficiaries are financially independent, such as children who are fully grown and living on their own. You could also choose to sell because you want to put the money going toward premiums into a rainy day fund, such as an account for emergency medical expenses.
Whatever your reason, you are not alone. In fact, LISA reports that over 3,000 life insurance policies were sold in 2023 and that number marked an increase from the previous year.
The process of selling your universal life insurance policy can be broken down into a few steps.
Step 1: Check Eligibility
To sell your universal life insurance policy through a life settlement, you generally need to be at least 70 years old and have a policy value of at least $50,000. If you check both of those boxes, you may be eligible. Even if they don’t apply, you still might be eligible to sell the policy through a viatical settlement if you’ve been diagnosed with a chronic or terminal illness. However, we’ll need to review medical records and policy details to confirm eligibility in the following step.
Step 2: Apply
Step 3: Accept Offer and Payment
Each person’s situation is different, but the most common reasons for surrendering a life insurance policy include:
- Do You Need Coverage: When you sell your policy, you will lose coverage and beneficiaries will not receive a death benefit. It’s important to make sure you’re ok with this or have other means to provide for beneficiaries if desired.
- Is the Value Fair: You can only sell your policy once, so make sure you’re satisfied with the value you get for it. It might be a good idea to get quotes from multiple companies to compare offers and choose the highest value, or wait a little longer since you may be able to sell it for more when you’re older.
- Tax Impacts: If the payout you get exceeds the premiums you’ve paid, you’ll have to pay income tax on the proceeds. We recommend consulting with a financial advisor to determine if you’ll pay any taxes and how the transaction will affect your finances.
The value of your universal life insurance policy is based on your policy size, age, health status, and the price of your premiums. You’ll need to contact a life settlement company and submit policy details and medical records for the most accurate estimate of your policy value. However, you can also use your life settlement calculator to get an idea of how much it’s worth.
If you’re unsure about selling or want to explore your options before making a decision, it’s a good idea to look into alternatives and compare the value or benefits you’ll get from each.
- Withdraw Money from the Policy: If you need cash quickly, you can choose to withdraw money from the cash value of your policy. The downside is that your death benefit will be reduced.
- Borrow Money from the Policy: You can also take a loan on the cash value of your policy, which can be repaid to prevent your death benefit from being diminished. However, as a loan you’ll also have to pay interest which will vary case by case.
- Surrender the Policy: You can surrender the policy back to the insurer, which is the same thing as canceling it. When you do so, you’ll receive the cash surrender value and your coverage will end. However, it’s important to note that the surrender value will be lower than what you’d get from selling it.
Selling your universal life insurance policy is a major financial decision that affects you and your beneficiaries, so it’s a decision that warrants careful consideration. If you decide to sell, it’s important to work with a company that will help make the process as easy as possible and maximize the value you get.
Harbor Life Settlements can help you determine if you’re eligible to sell your policy and find out how much it’s worth. Get a free estimate to get started today!
