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Selling Your Life Insurance Policy Can Give You Cash

Wednesday, May 16, 2018

Can I sell my life insurance policy for cash? This is the question you might ask if you have a life insurance policy that you no longer need or can’t afford. You may think that stopping payments for the policy or surrendering it are the only options that you’re left with. However, that’s not the case; there are other options as well, like selling your life insurance policy for cash.

"80% of the Life insurance policies having the face value of more than $100 billion are lapsed or are surrendered by the people every year in the US."

There are chances that you would have heard people selling their life insurance policies in exchange for cash. This might get you thinking that it’s an easy way to get cash from your life insurance policy whenever you want, which is not the case.

The truth is, selling life insurance policy is an alternative that can be taken in some situations where you don’t want your life insurance policy anymore. Even in those specific situations, you need to first understand how it works, what are the situations where you could sell your life insurance, and its consequences as well.

Before selling your life insurance policy, you need to make sure that you cannot continue to pay for the insurance or you no longer need the benefits that these insurances provide after you pass away. This is where it gets very tricky and you need to be absolutely sure about what you choose to do.

What does selling your life insurance policy for cash mean?

Once you’ve decided that you’re going to sell your life insurance policy, you need to know everything about it. Selling a life insurance policy basically is a process that involves selling your policy to another investor or entity. Once sold, the buyer becomes the owner of the policy, which means the buyer pays the premiums and then receives the benefits from the policy when you pass away.

This process is also referred to as a life insurance settlement or in some cases viatical settlement. Life insurance settlements allow you to receive more money than what you would get when you cancel or surrender your insurance policy for its cash value. On the other hand, life insurance settlement provides you less face value or death benefits.

How does selling your life insurance policy work?

In order to sell your life insurance policy, the most important thing is to find a suitable buyer. You can do it yourself or you can take the help of companies that buy existing life insurance policies. Also, you need to make sure that you have all the necessary documents, like the required insurance policy documents and your present medical records.

life settlement process

Basically, life insurance buyers tend to buy policies based on many factors, most importantly:

  • The Seller’s age and health
  • The type of life insurance policy
  • The total cash surrender value or the accumulated cash value of the policy
  • The cost of the life insurance premiums
“Life insurances of people above 65 years or people who are terminally ill, fetch more buyers, because there are more chances of the buyer getting the returns early.”

Reasons to sell your life insurance policy

Reasons to sell your life insurance policy

There are only specific circumstances where you could consider selling your life insurance policy. Here are some of those:

Premium costs being unaffordable

If there’s a situation where the cost of your life insurance premium becomes unaffordable, you as the policy owner can sell your policy to prioritize the current financial situation. This will help you get the much needed money that could bring in financial stability for you and your family.

Better use of the funds

There are times when in spite of you being able to pay for the life insurance policy would want to sell your policy to use the money for other purposes. You can use the money you get to repay your old loans or you can use it for many other purposes as well.

Meet the healthcare and aging costs

The rapid increases in the cost of healthcare have put many seniors in a very vulnerable position financially. If you’re facing the same problem, you can sell your life insurance policy and use the cash for your healthcare and treatment. This is a valid reason to sell your policy.

”The cost of healthcare increases by almost 5% every year, which has been the major factor behind putting many seniors under vulnerable financial positions.”

There’s no longer need for the life insurance

Most of the life insurance policyholders tend to purchase the policies to provide financial support to their children in case  something happens to them. However, when the children grow up and become financially independent , there’s no need to keep paying for the policy anymore . This is when you can decide to sell your life insurance policy.

Things that you need to know before selling your policy

Now that you know about the specific circumstances where you could consider selling your policy, there are a few things that you need to keep in mind. Here are some things that you need to know before selling your policy:

  • Your life insurance policy might not have the same value in the market that you’ve expected it to be. There are chances that your policy might not worth anything in the market as well. This is why you need to be prepared for the consequences.
  • You’ll not get the complete face value for your policy. There have been various studies by the U.S. Government Accountability Office that suggests that most people only receive about 13%-23% of the total value of their policy after selling them, which is still better than getting nothing.
  • There may be tax complications related to the selling of the policy. You might be subjected to pay a certain amount as a part of income tax.
  • There are also chances that your eligibility for the government assistance program might change if you decide to sell your life insurance policy.
  • Viatical settlements are different from the life settlements. Many people tend to think both are the same. Well, the only thing that’s similar in both these settlements is selling of your life insurance. However, the major difference between these is, the viatical settlements can only be done if a person has a life expectancy of fewer than 2 years.
“Life settlements pay policy owners three to five times on average more than the cash surrender value”

Who will buy your life insurance policy?

Who will buy my life insurance policy? This is one of the most important questions that you might come across after deciding to sell your policy. There are certain companies that buy life insurance policies known as life settlement providers who specialize in buying these existing life insurance policies from the people. These institutions are mostly regulated by the state laws that make them the safest place where you can sell your policy.

You can also sell your policy yourself by finding a buyer for it or through a broker as well. However, this could be tricky as the buyers generally look for specific policies. Some look for small policies, while others prefer big policies. Finding the right kind of buyer for your policy might be a hectic job. This is why it’s recommended that you choose a life settlement provider to do the job for you.

“Brokers tend to collect almost 30% of cash gained from the life settlements as commission from the policy owners.”

Is selling life insurance for cash safe?

As per studies, more than $1 billion worth of life insurance policies are sold in the US settlement market. This figure is a testament to the fact that the life settlements are safe for most people. Also, if you choose to sell your policy with the help of a big life settlement provider, like Harbor Life Settlements,which is one of the best companies that buy life insurance policies, then there are much fewer chances of any problems.

How to find the right buyer for your life insurance policy?

It might have become obvious to you that finding the right buyer for your policy is the most essential part of the whole life settlement process. This is why it’s recommended that instead of going out yourself to look for a potential buyer for your policy; you should opt for life settlement providers. The life settlement providers, like Harbor Life Settlements, have experience in finding the right buyers for your policy.

Also, there are chances that you might not know the worth of your policy, which happens in most cases. This is where the life settlement providers or the viatical settlement companies as they are known in some cases, can come to your rescue by providing the actual value for your policy.

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