How Do I Sell My Term Life Insurance Policy?
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- Sell Your Term Life Insurance Policy For Cash -
How to Sell Your Term Life Insurance Policy
Short on cash? Your term life insurance policy could be your solution. Specifically, you may have the option to sell your term life insurance in a life settlement for a lumpsum of cash that can be used to pay off debt, cover medical expenses, or fund retirement to make the most of your golden years.
Harbor Life Settlements can help you uncover the cash value of your term policy so you can make an informed decision about whether you should sell it. Check out the information below to find answers to frequently asked questions about selling a term life insurance policy, or contact us for more information and a Free Estimate.
Your first step in exploring the value of your life insurance is to find out what type of policy you have. If your policy has an expiration date, it’s term life. The expiration date distinguishes term life insurance from “permanent” forms of life insurance. Expiry also limits how much value you can get from your policy.
If you pass away before your term policy’s expiration date, your named beneficiaries will receive the death benefit. Once the policy reaches its expiration date, though, your coverage ends. You stop paying premiums and your beneficiaries receive no payment if you die. You also get no cash out or any other benefit in return for the premiums you paid while the policy was in force.
The reason there’s no cash available at the end of a term life policy is because this coverage has no savings feature. In life insurance, the savings feature is called cash value. Since there is no cash value, you cannot borrow, withdraw, or cash out funds from term life insurance.
If you know your policy is term life, read on for a walk-through of selling term life insurance. If you have another form of permanent life insurance, such as whole life, universal life, or variable life, see our general Life Settlement FAQs here.
You may be able to sell your term life insurance if both of the following are true:
- The term policy is convertible into a permanent policy. To sell your term life insurance, you’ll want to convert it into permanent insurance, and then sell the permanent policy. Term life policies that are not convertible are generally not sellable. If you’re not sure if your policy is convertible, contact your insurer and ask. Specifically, you want to know if you have a conversion rider or option to convert your policy. Also ask when the conversion period ends. Not all policies allow you to convert at any time.
- You are 65 or older, or terminally ill. There are two ways to sell your term life insurance. The most common is a life settlement, which is reserved for senior insureds aged 65 or older. The second option, a viatical settlement, is available only if you are terminally ill with an expected lifespan of 24 months or less.
The life settlement process is complex and overwhelming for most people, which is why it’s recommended to work with an experienced third-party such as Harbor Life Settlements to guide and ensure you get a fair value for your policy. Before you begin the process, you’ll need to decide whether you’ll work with a broker or provider
The conversion from term to permanent life is straightforward for your insurer to process. But there are some consequences to understand before you proceed — even if you plan on selling the converted policy right away.
It is possible you’ll decide not to sell for some reason. Plan for that scenario by being comfortable with your new insurance terms and premiums.
How permanent life is different
Permanent life has no expiration date. That’s the distinction that makes permanent life sellable vs. a nonconvertible term life policy. Potential buyers of life insurance do not want policies that expire.
Permanent life additionally has the cash-value savings component that term life does not. Here’s how it works. A portion of each premium payment goes into your policy’s cash-value account. The balance grows over time based on the policy’s terms, which usually involves one of the following:
- Fixed interest rate
- Variable interest rate with a guaranteed minimum
- Interest rate tied to the stock market
- Growth based on performance of investment funds
Note that your insurer may limit your conversion to certain types of permanent insurance. As a result, you may not have all these options for your cash-value account.
What you will have (if you converted and chose not to sell the insurance) is a cash-value account that produces tax-deferred earnings. As that balance rises, you can borrow against those funds or, possibly, withdraw them.
Or, if you later decide you don’t need the insurance, you can cash it out in a surrender or sell it in a life settlement.
The premiums on permanent life insurance are usually 10 or 15 times higher than term life premiums. In other words, if you convert your entire term policy into permanent life with the same death benefit, your premiums will rise significantly.
Even so, the cost of your converted policy may still be less than the cost of buying new permanent life coverage. This is because the insurer prices your converted coverage using your original health status from when you bought your term policy. That works in your favor if your health has deteriorated since then.
Your insurer may give you the option to convert part of your term insurance. You’d go that route if you want to sell some life insurance, but also keep a smaller death benefit for yourself.
Say you have $300,000 in term life coverage. You could opt to keep $100,000 in term, for example, and convert $200,000 into a permanent policy.
Life settlement companies and investors buy term life policies that have been converted to permanent insurance.
As a policyholder, you can sell your insurance directly to a buyer, called a life settlement provider. You can also use a life settlement broker or you can work with a full-service life settlement company.
- A life settlement provider buys converted term policies directly. The process may be faster, but you may get a lower price.
- A life settlement broker earns a commission in return for marketing your policy to multiple buyers and securing a higher sales price. You will pay the broker a commission, but the higher sales price should pay for it.
- A life settlement company provides a full-service solution, managing the transaction from start to finish. Harbor Life Settlements is a life settlement company, and we use our sister brokerage to get you the highest price.
Selling your life insurance can be complicated, and more so when you add a policy conversion to the mix. Below is an overview of the process in five steps.
1. Verify your policy is convertible
Contact your insurer to confirm that your policy is convertible. Questions to ask are:
- Is there a maximum age for conversions?
- Does my policy limit when I convert? If so, what are those limitations?
- Can I convert part of my policy value?
- Do any of my past premiums get credited to the new permanent policy?
- What are my options for permanent insurance?
Make a note of the information you collect, but don’t proceed with the conversion yet. You’ll want to check your eligibility for a life settlement first and then review your alternatives — steps two and three below.
2. Contact a life settlement company
To qualify for a life settlement, you normally must be 65 years or older and have a policy valued at $50,000 or more. As noted, if you are terminally ill, you may qualify for a viatical settlement at any age.
Harbor Life Settlements can review your policy details, confirm your eligibility, and appraise your policy — free of charge. Taking this step before you convert may spare you wasted effort and expense. If you’re not eligible for a life settlement or the policy value isn’t what you expected, it’s better to know before you alter your coverage.
3. Compare your alternatives
Common motivations for selling life insurance are: the policy’s value is worth more to you in cash, you don’t need the insurance any longer, and you don’t want to keep paying the premiums.
A life settlement is one way to address these factors, but it’s not the only way. As with any major financial decision, it’s smart to evaluate alternative strategies to identify the best course of action. Those alternatives include accelerating your death benefit, using your long-term care rider, pursuing a viatical settlement, or converting the insurance and building up your cash value. Here’s a closer look at each of these.
Accelerated death benefit
Your term life insurance may have an accelerated death benefit rider — an optional feature that gives you access to your death benefit while you are living. Typically, this feature unlocks if you’ve been diagnosed with a terminal illness and have an expected lifespan of 24 months or less.
Accelerating your death benefits is an alternative to the viatical settlement since both options are available to those in poor health. The primary differences are as follows. Accelerating your death benefit keeps a portion of your end-of-life payout for your beneficiaries, but you still pay insurance premiums. A viatical settlement eliminates your future premiums and leaves no death benefit available to your loved ones.
Long-term care rider
Long-term care riders are typically associated with permanent life insurance policies. The feature provides you with a lumpsum payment or monthly payments if you require medically necessary long-term care. As with an accelerated death benefit, you may need to continue your premium payments.
Harbor Life Settlements can work with you to determine if a viatical settlement or a life settlement is the better choice for you. If you qualify for a viatical settlement, there are advantages over a life settlement. Viatical settlements are processed faster than life settlements and the proceeds are often tax-free.
Convert and start building cash value
Depending on your situation, you may want to convert your policy and keep your permanent life coverage. The advantages are that you can build up cash value and be covered by a death benefit at the same time.
It takes time to grow cash value, but eventually you’d have access to those funds through a loan or withdrawal. You could also fully cash out the policy later in a life settlement if you needed to.
4. Convert your policy
If selling your term life policy is how you want to proceed, then the next step is to ask your insurance carrier to do the conversion. You should not need to answer health questions or provide medical records. You’ll only sign some paperwork and pay your new premium.
5. Sell your term life insurance in a life settlement
Once the policy is converted, you’re clear to begin the life settlement process. Your Harbor Life Settlements team will walk you through everything, from signing medical release forms to preparing documentation and reviewing your offers.
From start to finish, the sale of your life insurance can take two to four months. The goal is to sell your converted term policy for up to 60% of its death benefit and at least double its surrender value. That should produce some nice cash in return for the investment you’ve made in your term life policy over the years.
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Life insurance is a long-term asset. Over the decades a life insurance policy is in force, your client’s financial situation is likely to evolve. Sometimes, that evolution is so significant that the existing life coverage is no longer a good fit.
An inforce illustration is an estimate of how a life insurance policy’s cash value balance will change over time. The illustration can be incredibly useful in your financial planning, because — unfortunately — life insurance policies can go sideways.
A long-term care rider is a life insurance feature that helps pay for ongoing, medically necessary care from a home health aide, skilled nursing facility, or nursing home. Any LTC payouts are treated as prepayments against your life insurance policy’s death benefit.
A chronic illness rider is a feature available on life insurance that funds long-term care costs when you have a permanent or terminal illness. Some chronic illness riders specify the conditions or diseases that are eligible for benefits, but many do not.
Read on for a walk-through of the mechanics of borrowing from life insurance, including the terms, tax consequences, borrowing limits, and the pros and cons. With that base of knowledge, you’ll be ready to decide if a life insurance loan is right for you.
Looking for the best retirement investments to fund your golden years? You’re in the right place. Here’s a review of eight investment assets and accounts suitable for retirement planners and retirees, along with guidance on how much money you actually need to retire.
Harbor Life Settlements Will Help You Get The Most Money For Your Life Insurance Policy