How Much Is My Life Insurance Policy Worth?

How Much Is My Life Insurance Policy Worth?

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How to Sell Your Life Insurance Policy for Cash

Selling your life insurance policy through the transaction known as a life settlement or viatical settlement can provide financial relief for people facing high premiums or looking for an extra source of money. However, there’s a few things you should know before you start the process. In this guide, we’ll help you determine if you should sell your life insurance policy and what the process looks like so you know what to expect.

Table of Contents

Can You Sell Your Life Insurance Policy?

Yes, you can sell your life insurance policy through a transaction known as a life settlement or a viatical settlement. The process of selling a life insurance policy involves exchanging ownership of your policy and its death benefit to a third-party buyer for a cash payment that’s more than the cash surrender value, but less than the death benefit of the policy. 

Selling your life insurance policy can pay up to 60% of your policy’s death benefit, and you can use the proceeds to cover living expenses, medical bills, or for anything you want. According to LISA’s 2022 Annual Market Data Collection Survey, selling a policy resulted in an payout that was five times higher than the cash surrender value on average. Your right to sell your life insurance policy is legally protected by the Supreme Court case Grigsby v Russell in 1911, where the court ruled it was legal for a patient to sell his policy to his doctor in order to pay for care.

Reasons to Sell Your Life Insurance Policy

Most reasons to sell a life insurance policy come down to no longer needing coverage, being unable to afford the policy, or wanting to cash out. Here are the most common reasons for selling a life insurance policy:

  • Your children are grown and financially independent
  • You can no longer afford the policy premiums
  • You need money to pay for a large, surprise expense
  • You want to create a rainy day fund for medical bills and long-term care costs
  • You need extra money to help with retirement living costs
  • Your policy term is about to end
  • You sold your home and no longer have to worry about estate taxes

Selling your policy helps cut down expenses, and can give you money to help save or pay for other costs. In fact, you may be able to sell your policy for a value worth up to 60% of the death benefit or five times the cash surrender value.

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

If you meet the requirements to sell your policy, the underwriters will then appraise the value of your policy. The amount you’re offered is based on your policy’s value, your insurance premiums, and your health status. Generally, you’ll get a higher offer if you’re older and have any health conditions, or if you’ve got a policy value much larger than the requirements.

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. 

Factors that Affect How Much You Can Get From Selling Your Policy

The value of your life insurance policy is based on several factors. You can use our calculator to get a free estimate, but for additional context, here’s an explanation of the factors that affect policy values.

1. Policy Size

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

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.

4. Health Status

The health status of the insured is related to their life expectancy, as the presence of health conditions will reduce life expectancy and generally increase the value of a life settlement. On the other hand, healthy individuals may receive lower offers because they’re expected to live longer. When applying for life settlements, the company will ask about the presence of health conditions and how long you’ve had them for. They’ll also consider if any current health conditions were considered when purchasing the policy, which could reveal value if you developed it after purchasing the policy.

5. Age

Older individuals generally receive more money from selling their policy because they have a shorter life expectancy, while younger individuals can expect lower offers because the buyer has to account for paying premiums for a longer period of time. 

6. Policy Type

The type of policy can have an impact on it’s sale value, as permanent policies with cash value may be worth more than term policies that are deemed riskier or sometimes ineligible for settlements.

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 insurance buyout. 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.

Selling a Term Life Insurance Policy

Term life insurance policies may be sold through a life settlement, but it usually needs to be converted into a permanent policy like whole, universal, or variable life insurance. You’ll need to contact your insurer to discuss if you can convert your policy and what the process entails. Your insurer may set a conversion deadline that only allows a term policy to be converted within the first 5-10 years of coverage, and some insurers also set age limits that prevent you from converting a policy if you’re 65 years old or older. Once a term policy has been converted, you can check its eligibility to sell the policy through a life settlement.

If you’ve been diagnosed with a terminal or chronic illness, it may be possible to sell your term policy without converting through a viatical settlement.

Selling a Whole, Universal, or Variable Life Insurance Policy

If you have a wholeuniversal, or variable insurance — you may be able to sell it through a life or viatical settlement. These are permanent life insurance policies that build cash value, and they’re more likely to be eligible for a settlement than term policies because they don’t need to be converted first. The cash value of your policy will be a factor in its eligibility for a life settlement and the value you can get from selling it. If you do sell it, you’ll get a payout that’s more than the cash surrender value but less than the death benefit, and the money you get is generally tax-free outside of returns you get from the cash value.

Harbor Life Settlements Can Help You Sell Your Life Insurance Policy

If you’ve decided to sell your life insurance policy, Harbor Life Settlements can help you maximize the value for your policy. We offer over 30 years of experience in the industry, expert service, and technology that’s changing the life settlement market. Through our sister company Harbor Life Brokerage and its online live-auction Exchange, we can put your policy in front of our wide network of buyers to get more offers and drive up the sale value. If you’re interested in finding out how much your policy is worth, you can use our life settlement calculator below, which is AI-powered and analyzes millions of data points to instantly provide an estimate that’s up to 89.2% accurate.

You can also contact us for any questions about selling your life insurance policy!

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 life settlement 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 selling your life insurance policy 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.

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.

Only you can decide whether selling your life insurance policy 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 compare it to other choices or keep this information in mind for the future.

Harbor Life Settlements is ready to help you determine the cash value of your life insurance policy. We’ll guide you through the 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.

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