How to Sell Your Life Insurance Policy for Cash
Expenses can add up quickly in retirement and sometimes it feels like your savings or pension just isn’t going to be enough. Rather than go back to work, consider selling your life insurance policy for a lump sum cash payment through a life settlement.
Check out our comprehensive guide to learn everything you need to know about selling your policy, or contact us for more information.
Can I Sell My Life Insurance Policy?
This is a common question that policyholders ask when they no longer need a life insurance policy. Are you thinking of stopping payments for the policy or surrendering it? Why do that when you have the option of selling your life insurance policy for cash!
We found that 80% of the life insurance policies with a face value of more than $100 billion are lapsed or are surrendered by policyholders every year in the US.
You may have heard about people selling their life insurance policies to life settlement companies or individuals in exchange for cash. This doesn’t mean that a policyholder can sell a life insurance policy for cash anytime he or she wants.
The truth is, selling a life insurance policy for cash is an option that can be taken when you don’t want the benefits of your policy anymore. Even in those specific situations, you need to first understand how the life settlement process works, under which circumstances you can sell your life insurance, and its consequences as well.
Before deciding to sell your life insurance policy, you have to be sure that you no longer wish to pay for the insurance and you don’t need the death benefits that the insurance provides. This is where it gets very tricky; you need to compare profit and loss before deciding to sell your life insurance policy.
What Does Selling Your Life Insurance Policy for Cash Mean?
Once you’ve decided to sell your life insurance policy for cash, you need to know everything about it. Selling a life insurance policy involves finding an investor or a life insurance settlement company to buy your policy. Once sold, the buyer becomes the owner of the policy. This means the buyer pays the premiums and then receives the benefits from the policy thereafter.
The process through which a policyholder sells the life insurance policy is commonly known as a life insurance settlement, or in some cases a viatical settlement. Life insurance settlements offer more money than what you would otherwise get when you cancel or surrender the insurance policy for its cash value. That said, a life insurance settlement provides you with less face value and offers no death benefits for your heirs.
What are the Requirements to Sell a Life Insurance Policy?
A lot of people mistakenly believe the only eligibility requirement that counts when it comes to qualifying for a life settlement is “how old do you have to be to sell your life insurance policy?” However, this is only one of the factors that affects eligibility.
To determine if you meet the requirements to sell a life insurance policy and qualify for a life settlement, you can contact an experienced life settlement company such as Harbor Life who will determine your eligibility and provide you with a free cash estimate. If you prefer to do research on your own first—here’s a list of all the factors that affect your eligibility to qualify for a life settlement:
Type of Policy
One of the key requirements to sell a life insurance policy is that you have an eligible type of policy. If you have a policy that is a convertible term, variable, or a universal life policy — you may qualify for a life settlement. In fact, convertible term policies and permanent policies that are group policies would also qualify for a life settlement. Additionally, standard term policies do qualify for a life settlement, but the insured needs to be terminally ill if they are out of the level term period.
Age of the Policy
This is a factor that contributes to how the state regulates who qualifies for a life settlement. When you plan to sell your life insurance policy, the life settlement company will want to check how long you’ve owned the policy. Every state has its own requirement on the minimum number of years for which you should own the policy before selling it for a life settlement. In some cases, this might be overlooked such as a divorce, death of a spouse, etc. However, this also depends on the state you live in.
Value of the Policy
Life settlement companies, and even brokers, are very upfront when it comes to the value of the policy and whether it meets the requirements to sell. Companies that buy life insurance policies, or individual professionals, design a structure to deal with policies. Typically today, the value needs to be at least $50,000 to qualify for a life settlement.
Age of the Policy Owner
People who have reached the age 70 years or older are most likely to qualify for a life settlement. The older the person is, the more valuable the life settlement becomes. The age factor makes sense, since the buyer only gets benefits when the seller passes away. The older the seller is, the lower his/her life expectancy. Combining the age factor and the medical records of the seller, an approximate value of the life expectancy is calculated which helps the buyer or life settlement provider make an estimate.
In summary, to sell your life insurance and qualify for a life settlement, you must generally be 70 years of age or older and have a convertible term, variable, or universal life policy with a value of at least $50,000. You’ll also need to check your state’s eligibility requirement on how long you need to own the policy before selling.
This can get confusing due to varying situations, which is why we recommend you contact our life settlement experts to help you determine your eligibility and see how much your policy is worth.
Requirements to Sell a Life Insurance Policy through a Viatical Settlement
Even if you do not meet the above eligibility requirements for a life settlement, it is possible that you may still qualify for a viatical settlement. A viatical settlement is similar to a life settlement, but differs in a few ways.
First, viatical settlements are specifically for people diagnosed with a chronic or terminal illness—although they can be almost any age unlike life settlements which generally require the person to be 70 or older.
Second, viatical settlements typically have a much higher payout for the policyholder because the life expectancy for the person seeking it is usually much shorter than someone trying to qualify for a life settlement.
Finally, viatical settlements are generally not subject to federal income tax—meaning you may be able to keep the entire lump sum! The tax impacts will vary person-to-person, so we always recommend talking to a financial advisor before making a decision.
If you have recently been diagnosed with a chronic or terminal illness and would like to learn more about this option—contact us for more information. Harbor Life Settlements will provide you with a free estimate of your policy’s value and while some companies can take up to nine months to complete the transaction, we may be able to purchase your policy in as few as 10 days with payment awarded within a few weeks. Learn more about this option and get your free estimate today.
What is the Process of Selling Your Life Insurance Policy?
The most important step towards selling your life insurance policy is to find a suitable buyer. You can do it yourself, or you can take the help of a life insurance settlement company that buys existing life insurance policies. Also, you need to ensure that you have all the necessary documents required, such as the insurance policy documents and your present medical records.
Life insurance buyers tend to buy policies based on various 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 insurance policies of people over 75+, or people who are terminally ill fetch more buyers because there are more chances of the buyer getting the returns early. Take a look at the infographic below to learn more about the life settlement transaction process.
Reasons to Sell Your Life Insurance
A majority of life insurance policyholders purchase policies as a backup solution to provide financial support to their children in case of any adversities in the future. However, when the children grow up and become financially independent, there’s no need to keep paying for the policy. Many people choose to sell their life insurance policy for cash because of this, but other common reasons include:
1. Unaffordable premium costs
The cost of healthcare is increasing by almost 5% every year, which has been the major factor behind putting many seniors in vulnerable financial positions. If you are going through a situation where the cost of the life insurance premium becomes unaffordable, you as the policy owner can sell your policy to overcome the current financial dilemma. This will help you get the much-needed money that could provide financial stability for you and your family.
2. Better use of the funds
There are times when in spite of your ability to pay for the life insurance policy, you may want to sell it for other purposes. For example, you can sell your life insurance policy and use the money to repay your old loans or for other immediate needs.
3. Meet healthcare costs
The rapid increase in the cost of healthcare has put many seniors in need of financial assistance. If you’re a senior citizen 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 for cash.
Also, you can benefit by discovering the cash value of your policy, even if you don’t decide to sell. Life settlement providers and viatical settlement companies can assist you in assessing the cash value of the life insurance policy and provide you with the actual worth.
What Else Do You Need to Know About Selling Your Life Insurance Policy?
We’ve discussed many of the steps involved in selling your life insurance policy. Remember, the decision to sell your life insurance policy is yours. Some people decide that they want to know what their policy is worth, but wait until later to consider selling. Every person’s situation is different.
Still have a few questions about selling your life insurance policy? Here are some additional points to take into consideration:
Determine the Value of Your Policy
We have previously discussed getting a valuation for your life insurance policy. You will want to first get your life insurance policy appraised so you can know the value of it, as this fact will help you navigate the rest of the process. Should you choose Harbor Life Settlements to help you determine your policy’s value, you’ll receive your answer faster than you would if you were to use another life settlement company.
Let’s look at a hypothetical scenario so you can know what to expect:
You decide you would like to know how much your life insurance policy is worth in cash. Harbor Life Settlements works with the insurance company to collect all necessary information to determine whether a policy type can qualify. If the policy type and premiums are eligible for a life settlement, Harbor Life then collects the necessary medical information to fully underwrite the policy. After the discovery and underwriting phases, Harbor Life will then send the case to our preferred licensed broker partner. They will present your policy to a large network of buyers to bring you the best price. The broker will then present you with the best cash offer.
Next, you can opt to continue with the sales process, should you wish to sell your policy for cash. Or you can do nothing and retain your policy, knowing what it’s worth now, and have that in mind, should you need the cash for the future. We recommend that everyone at least find out what their policy is worth in cash, should a person need to sell the policy at some future date. With the rising cost of long-term care and other expenses that can crop up during retirement, it’s good to know that you have a potential ‘go-to’ cash resource from potentially selling your life insurance policy.
Can I Sell My Term Life Insurance Policy?
You may be able to sell your term life insurance policy for cash. It’s a good idea to talk to a life settlement company about your options. Harbor Life Settlements can examine your policy and let you know. In many cases a term life insurance policy can be converted, allowing you to sell it for cash, as you could with other policies. Even if you do not intend to sell your term life insurance policy right now, having the information can allow you to make decisions. You may want the cash for a future need; so discovering your policy’s cash value now can be helpful.
Enjoy Financial Flexibility from Selling Your Life Insurance Policy
In addition to creating a will and handling other aspects of your affairs, selling your life insurance policy for cash can help you provide for your family’s needs. When you discover the cash value of your policy via a price check process with a life settlement company, you can do more than plan for the future – you can help your family right now, too. Consider this example:
Jenny owns a life insurance policy with a $2 million dollar death benefit. Harbor Life Settlements underwrote her policy to determine the value, and sent it to a licensed broker who presented it to a network of buyers. The broker was then able to make Jenny a cash offer, which in this example is $1,200,000 (this is an example; your circumstances may cause the cash price to differ). Jenny decides to keep half the money to fund her long-term care needs. She then gifts the other half to her son, so he can put a down payment on a house.
Selling your life insurance policy for cash allows you to enjoy financial flexibility. You can provide for your own needs, and should you wish to, you can help family members now, versus having them wait to become beneficiaries of your policy, upon your death.
A Closer Look at the Tax Implications of Selling Your Life Insurance Policy
As with any financial decision, it’s important to check on the tax implications. Your particular situation will differ from that of other people, so providing examples here will not be applicable. A talk with an independent financial advisor can put your needs into focus, and help you decide if selling your life insurance policy is right for you. You can listen to what the advisor has to say about tax implications for your present situation, and how the sale of your policy might affect your future. The decision to sell or to retain your policy can then be made when you have all the facts about how a cash settlement will impact your finances.
While you are speaking with your financial advisor, you may wish to ask about how selling your life insurance policy might affect your eligibility for Medicaid, if you had plans to apply for that program. Your advisor can work out the details of how a lump sum cash payment from a life settlement company may impact this, and eligibility for other programs. Some of these calculations/forecasts can be complex, and often are best reviewed by professionals. You may wish to determine how much you could get in cash for your life insurance policy, then consult with financial experts to have them advise you regarding your personal situation.
Gather the Information You Need for an Informed Decision
We’ve reviewed several key points regarding the potential sale of your life insurance policy. Some points apply more generally, and others may be best understood by consulting with a private financial counselor or advisor. In the end, you are the one who will determine the best course of action. Gathering information and discovering your options is the same kind of fact checking you would do for any decision. You can get multiple estimates if you wish, and weigh the pros and cons to see if selling your life insurance policy is the right choice for you.
Harbor Life Settlements is ready to help you discover the cash value of your life insurance policy. We can also guide you through the sale process, should you wish to sell. Send us a message or call us today at (800) 694-0006 to get in touch with our team and find out how much your life insurance policy is worth in cash!