How to Sell Your Life Insurance Policy for Cash
If your financial situation has changed and you no longer want or need your life insurance policy, you may consider cancelling or surrendering the policy. However, you may be able to sell your policy through a transaction known as a life settlement, which yields an average value that’s five times higher than the cash surrender value according to LISA’s 2022 Annual Market Data Collection Survey. The survey looked at 3,079 life settlement transactions and found nearly $790 million was paid through selling a policy, which was $638 million higher than policyholders would have received if their policies were lapsed or surrendered.
You can choose to sell your policy directly to a provider, or work with a life settlement broker to seek and negotiate offers from multiple companies. When you sell your life insurance policy, the buyer will give you a one-time cash payment for a portion of it’s value, which can be up to 60% of the death benefit. After the transaction, the buyer takes ownership of the policy and will pay all future premiums and collect the death benefit when you die.
Choosing to sell your policy is a big decision, so it’s important to be familiar with the process and know the pros and cons. In this guide, we’ll walk you step-by-step through the life settlement process and answer frequently asked questions to help you determine if selling is the right choice.
Table of Contents
Can I Sell My Life Insurance Policy?
You can sell your life insurance policy through a transaction known as a life settlement, and it’s a legal right granted to you by the Supreme Court case Grigsby v Russell in 1911. If you have a life insurance policy you no longer want or need, you may be able to sell it for a value worth up to 60% of the death benefit or five times the cash surrender value. Selling a policy is almost always better than surrendering or lapsing your policy because you’ll typically get a larger return. Although, whether you should sell depends on personal factors like your financial situation and health status.
How to Sell Your Life Insurance Policy
If you decide to sell your life insurance policy, you’ll want to start by checking your state’s life settlement regulations and taxation rules. After getting familiar with that information, you’ll need to decide if you want to use a life settlement provider or broker. A life settlement broker will handle most of the process for you including filling out applications and negotiating offers, but will charge a commission fee for their services. A provider is a company or investor who will purchase the policy, so working directly with them cuts out the middleman but means more work for you and potentially lower offers.
Whether you work with a provider or broker, the process of selling your life insurance follows the same steps:
1. Application
You’ll need to complete applications for each life settlement provider you’re seeking an offer from, or give your broker authorization to complete applications on your behalf. In some cases, you’ll be asked to submit medical and insurance records. However, it’s more common for the providers to request authorization so they can get the information directly from your insurance company and healthcare provider.
2. Underwriting
After submitting the proper documentation, your partner will begin the underwriting process which consists of thoroughly evaluating your information to verify its accuracy and check if you qualify for a life settlement. Typically, to qualify for a life settlement you’ll need to be at least 70 years old, have a death benefit of at least $100,000, and have a policy type that’s whole, convertible term, variable, or universal life.
3. Offer
4. Negotiation
After you’ve received the offer from a provider, you or your broker can choose to accept or reject the offer and negotiate for more money until a price is eventually agreed on. If you’re unsatisfied with an offer and the buyer doesn’t seem willing to budge, you can seek offers from other providers and repeat the process to see if you can get a better deal. You can do this as many times as you’d like until you get an offer you’re willing to accept.
5. Exchange
Once you’ve accepted an offer, the buyer will send you closing documentation to complete. After you sign the documents, your life insurance company will be notified and they’ll transfer ownership of the policy to the buyer. During the transfer, you’ll also receive a one-time payment for the agreed amount, minus applicable taxes and fees.
How Much Can I Get From Selling My Life Insurance Policy?
The amount of money you’re offered for your policy depends on several factors like your policy value, insurance premiums, and health status. Although every case is different, it’s possible to get up to 60% of your policy value through a life settlement. So if your policy has a $200,000 benefit, you may receive $120,000 from selling it. LISA’s 2022 Annual Market Data Collection Survey analyzed 3,079 policies that were sold and found those transactions paid almost $790 million to policyholders, which was five times higher than the cash surrender value of those policies. The survey found that selling a policy awarded $638 million more than what those consumers would have received from surrendering or lapsing their policy, which equated to an average of $255,000 extra in each person’s pockets.
For additional context, here’s an explanation of the factors that affect the offer you’ll receive for your life insurance policy:
1. Policy Value
The death benefit is ultimately what the buyer is investing in when they purchase a policy, so a larger death benefit means a larger payout for them. Thus, larger policies typically result in higher offers. However, even a small policy could be worth a sizable sum depending on the other factors above
2. Premium Costs
As noted, the buyer of a life insurance policy will need to continue paying premiums until the policyholder passes away. Thus, the cost of premiums is an important factor in policy valuation. Low premiums mean the policy is cheaper to maintain which results in a higher life settlement value. On the other hand, high premiums are more expensive and risky for the buyer which results in a lower offer.
3. Life Expectancy
Life expectancy is an estimate of how long the policyholder is expected to live, which is calculated by examining the age and health of the individual. In a life settlement the buyer will need to continue paying insurance premiums for as long as the policyholder lives, so a shorter life expectancy makes the policy more valuable because they expect to pay less in premiums over time.
Instant Life Settlement Calculator
Talking with an agent will provide the most accurate estimate on how much your policy is worth, but our life settlement calculator can provide an estimate that’s up to 89.2% accurate if you want to get an idea before speaking with us. Fill out the information below to get an evaluation on your policy and see how much money you may get through a life settlement, surrendering the policy, or keeping it. We even include projected investment returns and taxes, so you can see how much you could get by reinvesting proceeds.
Requirements For Selling Your Life Insurance Policy
Some people may be ineligible to sell their life insurance. In some cases, the issue could be that the person isn’t old enough which means they can reapply in a few years and may be approved. However, some factors like the policy type may mean a policy will never be eligible for a life settlement. The requirements to sell your life insurance policy include:
1. Type of Policy
Not all life insurance policies can be sold. To qualify for a life settlement, you must have a whole, convertible term, variable, or universal life policy.
2. Value of the Policy
In most cases, the face value of your policy must be at least $50,000 to qualify for a life settlement.
3. 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.
4. Age of the Policy
To sell your life insurance, you must own the policy for a set number of years regulated by the states. Each state has their own waiting period which varies between 2-5 years before you can sell it.
If you meet the above qualifications, you likely qualify for a life settlement. However, even if you don’t meet the qualifications above — you may qualify for a viatical settlement if you were recently diagnosed with a chronic or terminal illness.
If you need help determining your eligibility, contact us today to find out if you qualify and how much your policy is worth. We will guide you step-by-step through the process answering all of your questions and can give your a free estimate of the value of your policy if you are interested.
Pros and Cons of Selling Your Life Insurance Policy
In order to determine if you should sell your policy, it’s important to weigh the pros and cons:
Pros
Receive a large cash sum which can be used however you’d like
Recoup money you’ve put in as opposed to letting it lapse and getting nothing
Get more money than you’d receive by surrendering your policy to the insurance company
No more responsibility for paying insurance premiums
Cons
Your beneficiaries won’t receive a death benefit
Depending on the details of your life settlement, you may have to pay taxes
Brokers and life settlement companies will charge fees and commissions for their work
Accepting a life settlement may make you ineligible for Medicaid or other types of financial assistance
Frequently Asked Questions About Selling Your Life Insurance
The process varies from case-to-case and can take anywhere from two to four months depending on how long it takes to acquire the proper policyholder documents, the level of interest among buyers, and length of negotiations between the buyer and seller.
Life insurance policies can be sold to providers. You can choose to sell directly to them, but will need to submit individual applications for each provider. Alternatively, you can work with a broker who will present your policy to several providers, which may yield a higher sale value.
You have the option to back out at any point during the life settlement process and have no responsibility to accept an offer unless you find it suitable. Furthermore, there is also a recission period that is typically two weeks in which you can back out of the deal after accepting an offer.
The profit you receive from a life settlement is taxable, meaning you’d have to pay taxes if you received more from a life settlement than you’ve paid in premiums over the policy’s life. The difference between the surrender value and premiums paid is taxed as regular income, and the remaining proceeds are taxed as long-term capital gains. The taxation rules for life settlements can be complex so it’s best to consult a financial advisor to see if or how much you’d have to pay.
You can spend the money you receive from a life settlement any way you’d like. Many people use the money they receive to pay off debt, fund retirement living expenses including vacations, or set up an emergency fund for future medical expenses. The proceeds you get from a life settlement can help provide financial stability in your golden years, so we recommend at least getting an estimate so you have an idea of how much your policy is worth – even if you don’t plan on selling for several years.
A majority of life insurance policyholders purchase policies as a backup solution to provide financial support to their loved ones in case of any adversities in the future. However, over time circumstances change and they may decide they no longer want or need their policy anymore. Rather than stopping payments and getting nothing or surrendering it for a small sum, selling it results in the greatest value and there are several reasons people choose to go this route:
1. You No Longer Need Coverage
Once your loved ones are financially independent or you have enough in savings to support your family after your passing without the safety net of life insurance — you may see your policy as an unnecessary expense. Instead of paying money while you’re alive to provide unnecessary financial support after your passing, it makes sense to save that money for emergency expenses or improve your quality of living during your lifetime.
2. Unaffordable Premium Costs
As you grow older, your policy may become more expensive to maintain which becomes unsustainable during retirement when you have less money coming in. With a life settlement, you no longer have to pay these costly premiums and the money you receive from the transaction helps provide financial stability for you and your family.
3. Better Use of the Funds
Even if you can maintain your coverage, you may find there are better uses for the money you would otherwise spend on premium payments and the lump cash sum you get from a life settlement can help achieve financial goals during your lifetime rather than after your passing. For example, you could pay off debts such as a mortgage or even invest the money you get to create a nest egg that can be pulled from during your lifetime. You could also set aside some of the money you get so loved ones still receive an inheritance upon your passing.
4. Meet Healthcare Costs
The rapid increase in the cost of healthcare has put many seniors in need of financial assistance. Whether it’s hospital bills or long-term care expenses, many find they are unable to pay these costs out of pocket. When this occurs, a life settlement can provide the funds you need to pay for healthcare without taking on loans, leaning on family members, or parting with cherished assets such as your home.
5. Your Term Policy Is About To Expire
Term policies tend to be more affordable than permanent options, but only provide coverage for a set period of time. When this period is nearly up, the policyholder must decide whether they will continue coverage (often at a higher cost), get a new policy, or convert the policy into a permanent option which may then be eligible for a life settlement.
If you no longer want coverage, converting your term policy into an eligible form of permanent insurance enables you to recoup some of the money you’ve put in over time.
If you don’t qualify for a life settlement or want to know about your other options, there are a few alternatives you should know about:
Borrow Against Your Policy
If you want to maintain your policy but need money for other expenses, you may be able to borrow money from the cash value of your policy. The amount you can borrow depends on your insurer, and you’ll be charged interest for the loan. If you haven’t repaid this loan when you pass away, the remaining balance will be subtracted from your death benefit.
Utilize an Accelerated Death Benefit
An accelerated death benefit (ADB) is a rider included in most insurance policies that lets the policyholder receive a portion of their death benefit in advance if needed. Eligibility for an ADB depends on your insurer, but typically this option is used for individuals diagnosed with a terminal illness.
Surrender Your Policy
If you no longer want or need coverage, you can surrender your policy to your insurer for a cash sum. However, this option isn’t recommended because a life settlement produces a far higher value than surrendering it.
Let Your Policy Lapse
Letting your policy lapse is technically an option, but isn’t recommended because you receive absolutely nothing for your policy. Instead of letting it lapse, you’re much better off surrendering your policy for a small cash sum or even better would be selling it through a life settlement. Even if you have a term policy, you may be able to convert it into a permanent type which would be eligible for a life settlement.
In the end, only you can decide whether a life settlement is the best option for your needs and financial goals. We’ve detailed everything you need to know about the process so the only thing left to do is find out how much your policy is worth. Even if you don’t plan on selling, we recommend getting a valuation so you can have this as an option for the future.
Harbor Life Settlements is ready to help you discover the cash value of your life insurance policy. We’ll guide you through the life settlement process and answer any questions or concerns you may have. We will verify your eligibility, provide you with a free cash estimate, and should you choose to sell — we will handle all of the work to make things as easy as possible for you while also helping you get the highest amount for your policy.
Contact us to get in touch with our team and find out how much your life insurance policy is worth in cash!
About Harbor Life Settlements
Each year, $200 billion of life insurance will lapse that could have been sold as a life settlement. A lot of people only consider the value of life insurance to be from the death benefit or cash surrender value, but selling through a life settlement can offer a return 4-11 times higher than what you may get from surrendering. Find out why our industry-changing technology and expert service are trusted by both leading institutions and small producers, then contact us or use our life settlement calculator for an instant estimate on the value you could potentially get from selling your policy.
