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How Much Is My Life Insurance Policy Worth?

What is a Life Insurance Buyout and How Does It Work?

Last Updated: March 28, 2024
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If you have a life insurance policy you no longer want or need, a life insurance buyout may be a viable option to get money out of your policy. The process involves selling your life insurance policy to a third party for a lump cash sum, and it frequently comes up when people can no longer afford coverage or it’s no longer needed because children are financially independent.

To decide if a life insurance buyout is the right decision for your situation, there are a few things you should know. We’ll share information to help you understand the process and answer common questions from people who consider this option.

What is a life insurance buyout?

A life insurance buyout is transaction in which a policyholder sells their life insurance policy to a third party individual or company for a cash payment. The payment is larger than the cash surrender value, and the seller can use the money for anything they want. After the transaction, the buyer becomes the new owner of the policy and is responsible for paying future premiums. In exchange, they collect the death benefit when the original policyholder passes away.

What buyers look for

Interested buyers will look at several factors to determine the value of your policy including:

  • Policy Type: Buyers will start by checking if you have a form of permanent insurance like whole life, variable, or universal life which are eligible for a buyout. If you have a term policy, they’ll check if it can be converted to a permanent type because normal term policies are ineligible for a life insurance buyout.
  • Policy Value: A high death benefit will fetch a higher offer from buyers, since it means they’ll be able to collect more in the end. Buyers will also examine any cash value associated with your policy.
  • Policy Premiums: High premiums will decrease the value of offers from buyers, as it means they’ll have to pay more to maintain the policy.

Outside of these factors, buyers will also examine your age, gender, and health status to get a sense for your life expectancy. To put it simply, buyers are willing to pay more for a policy with a shorter life expectancy because it means they’re more likely to recoup their investment by having to pay fewer premiums. As a result, older individuals or those with health conditions will likely receive a higher buyout offer.

How a life insurance buyout works

The process will vary depending on whether you work directly with a provider or broker, but it will always follow these steps:

  1.  Application: First, you’ll need to fill out applications which involves submitting medical records. You can do this directly, or let a broker handle the process for you.
  2. Underwriting: Buyers will then evaluate the information you submit to determine if you’re eligible for a life insurance buyout, and how much your policy is worth.
  3. Offer: Based on the buyer’s analysis, they’ll give you an offer for your policy that’s impacted by your policy type, value, premiums, and your health status.
  4. Negotiation: You can choose to accept or reject the offer, and may be able to negotiate for a higher value. If working with a broker, they’ll handle negotiations by presenting your policy to several buyers and creating an auction environment to drive bids.
  5. Exchange: When you receive an offer that you’re happy with, you’ll fill out closing documents to exchange ownership of the policy. At this point, you’ll also receive a cash payment from the buyer.

Is a life insurance buyout right for you?

A life insurance buyout is great for some people, but not for everyone. Consider your current financial situation to decide if it makes sense to go without life insurance from this point forward.

If the policy is no longer essential, or if you need money now then a buyout can be a good decision over alternatives like surrendering the policy or canceling coverage outright. A buyout will generally provide a higher value than either of those options, but it’s a good idea to check for yourself before going through with the process. If you’re wondering how much your policy is worth through a buyout, you can use our calculator to find out instantly.

For more information about life insurance buyout, contact us and we’ll happily answer any questions to help you understand the process and determine if it’s a good fit for your goals.

How much is my policy worth?
Lucas Siegel

Lucas Siegel

Lucas Siegel is the founder and CEO of Harbor Life Settlements, a life settlement company that is dedicated to helping seniors and the terminally ill sell their life insurance policies, and Harbor Life Brokerage, a life settlement broker that helps policyholders receive the maximum cash value for their policy. He is an expert in the the life and viatical settlement industry, and has been featured in reputable publications such as ThinkAdvisor, WealthManagement, and Investment News.

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