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, most people will look at cutting expenses and parting with assets such as a car or home in favor of cheaper alternatives, but few people realize their life insurance policy is one of their largest assets that can be sold. In fact, selling your life insurance policy through a process known as a life settlement will yield far more money than the cash value you’d receive by surrendering the policy.
To help you decide if you should sell your life insurance policy, we’ve created this comprehensive guide with everything you need to know in order to make an informed decision. Learn what a life settlement is, how it works, find out if you’re eligible to sell your policy, and get answers to other common questions about this process. If you’re curious about the cash value you would receive from selling your policy, we offer a FREE estimate or you can contact us for more information.
Can I Sell My Life Insurance Policy?
At some point, people may decide they no longer need or want to continue their life insurance coverage. This may be because loved ones are financially independent and would not need the death benefit, or people may choose to stop coverage because they no longer wish to pay the high and sometimes unaffordable monthly premiums. If you’ve reached this point and no longer want to continue coverage, you have three options:
Lapse your policy by stopping payments for little or no money
Surrender your policy to the insurance company for a small cash sum
Sell your policy through a life settlement for the largest possible cash offer
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. Lapsing your policy by simply stopping payments usually means you will receive no money, and surrendering your policy to the insurance company will only net you a small portion of its potential value. Your best option is to actually sell it, which will provide you with a lump cash sum greater than the surrender value but smaller than the total death benefit.
As long as you meet the eligibility requirements (explained in a later section), you can sell your life insurance policy. This is a right that has been legally granted to you by the Supreme Court since 1911, following the landmark case Grigsby v Russell. The case marked the first sale of a life insurance policy, where a patient (John C. Buchard) didn’t have enough money to pay for a life saving medical procedure, so offered to sell his life insurance policy to his physician (Dr. Grigsby) in order to get the treatment he needed. Buchard died a year later, and upon his death the executor of his will (R.L. Russell) contested Dr.Grigsby’s ownership claim on the life insurance policy. However, the Supreme Court ruled that a life insurance policy is an asset, and the policyholders have the right to sell this asset much like any other property should they choose to do so.
You have the right to sell your life insurance if you wish, but before making this decision you should have a full understanding of the life settlement process, benefits, and potential consequences.
Selling your life insurance policy involves finding an investor to buy your policy. You can do this by going through a provider, who will make one offer on your policy. Alternatively, you can work with a broker who works with multiple providers to get you several offers. Better yet, you can work with a life settlement company that works with a network of providers and brokers, which puts your policy in front of the most investors and helps you get the highest cash offer.
Once sold, you will receive a large cash sum that can be used however you see fit and the investor who buys your policy will take ownership of the policy. This means the buyer pays the premiums and all other account maintenance fees, then receives the benefits from the policy upon your passing.
The process through which a policyholder sells the life insurance policy is commonly known as a life settlement, or in some cases a viatical settlement. These settlement options have a few notable differences, but both 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 settlement provides you with less face value than you would receive through the death benefit, and your heirs will not receive any money from the insurance company upon your passing (though you can always choose to leave an inheritance with the remaining money you have from selling your life insurance).
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 buyer 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.
Chronic or terminal illness diagnoses: 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.
Payout amount: 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.
Tax impacts: 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. We understand that a chronic or terminal illness diagnosis means you may have urgent medical bills, so we work diligently to get you money for your policy as fast as possible so you can pay for these expenses.
Learn more about this option and get your free estimate today.
What is the Process of Selling Your Life Insurance Policy?
That is why we recommend that anyone who is interested in selling their life insurance policy should work with a life settlement company. Life settlement companies like Harbor Life Settlements will handle all of the paperwork, put your policy in front of a network of investors, and negotiate to get you the highest cash offer for your policy.The most important step towards selling your life insurance policy is to find a suitable buyer. You can do it yourself, but the process is long and complex with a fair amount of insurance and medical paperwork. Furthermore, going about this process on your own may reduce the amount of money you could potentially receive, as you likely won’t be able to connect with as many investors and may not have the industry knowledge to negotiate higher offers from interested buyers.
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 above 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. In addition to no longer having to pay these expensive monthly premiums, you’ll also receive a large lump cash sum 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 incurred debts. For example, you may wish to sell your life insurance policy in order to pay off your mortgage early and avoid extra costs from interest over the remaining term.
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. Whether it’s hospital bills or long-term care expenses, this is a valid reason to sell your policy.
What Else Do You Need to Know About Selling Your Life Insurance Policy?
We’ve discussed in detail 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 common questions we get about the process:
How to Determine the Value of Your Life Insurance 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, even if it’s set to expire soon. 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 to a whole life policy, making it eligible for a life settlement.
Even if you do not intend to sell your term life insurance policy right now, having the information can allow you to make decisions at a later point. You may want to consider selling your policy before it expires; so consulting a life settlement company can help you get an idea of how much you can expect and how far in advance you’ll need to begin this process prior to its end date.
Are There Rules on How You Can Spend the Money From Selling Your Life Insurance?
You can spend the money you receive from a life settlement any way you’d like. Many people use the money they receive to fund retirement, including living expenses and vacations. You could also use it as an emergency fund for medical expenses, including long-term care should the need arise. Long-term care can range from $20,000 to over $100,000 a year depending on the level of care required, an expense few people are equipped to handle. Rather than lean on loved ones for financial support, you can sell your life insurance and use the money to handle these costs on your own. 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.
What are 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!