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Life insurance is an insurance policy that many people feel is an unnecessary expense since there is very little benefit while the insured is alive. This feeling can be especially common for those who own their homes and have adult children or for individuals with very few assets and no dependents, since a beneficiary does not necessarily need a payout after death to avoid financial hardship. If you have an existing life insurance policy and feel that it is no longer valuable to you, it may be time to consider selling your policy. Liquidating your policy for a cash settlement may be a quick way to get some cash on hand for other expenses while relieving the burden of monthly premium payments. While it is possible to sell your policy, there are several factors to consider when searching for a buyer to ensure you are getting the best value.
How to sell your life insurance policy
A life settlement is the more technical term for selling your life insurance policy for a one-time cash payment. Typically, investors are the ones who are looking for life insurance policies to purchase and add to their portfolio.
Investors who buy your policy on the secondary market are ideally looking for sellers who are over age 65 and have limited life expectancies. The reason those policies are most profitable to an investor is that when you die, the buyer gets the death benefit of the policy.
Naturally, investors are the most interested in high-value policies. Contributing factors include the total value of the policy as well as the life insurance company issuer rating, where “A” or better is preferred. Investors may also be looking for universal life policies with low or flexible premiums so they pay as few premiums as possible. While your policy may still sell if you have another type of policy, the offers may be lower.
To actually sell your policy, you’ll need to find a broker or a life insurance settlement company. They will act as the middle man in the transaction, and can help you find an interested buyer. Just keep in mind that brokers and settlement companies charge a fee, which means you won’t get the full value of the selling price.
5 Tips for selling your life insurance policy
Selling your life insurance policy isn’t easy. In fact, it can be difficult to find an investor that is willing to give you an acceptable offer. However, there are ways that you can maximize your payout. Here are five tips to keep in mind:
1. Get to know the process
Selling your life insurance policy is somewhat complicated, so before you get knee-deep in the process, it helps to have a solid understanding of how it works and what to expect. Make sure you know what type of policy you have, how much coverage you have and how much cash value is in the account. Also look into the rules and regulations for selling life insurance policies in your state.
2. Consider hiring an independent advisor
Find someone who is an expert in life insurance settlements and have them assess your policy’s value. Independent advisors can offer appraisals of what your life insurance policy is worth. They can also tell you about features that may add value, recommend brokers and help fill in the gaps.
3. Find a reputable broker
When trying to find the right broker, a good process is to interview not one but several. Ask questions like: What can you do to improve the offers I get? What is your commission structure? Is it negotiable? Are you licensed in your state? Are you willing to give discounts if I pay for medical expenses? Pay close attention to the transaction costs, because they can easily eat up your profits. Some experts indicate brokers can charge as much as 30% to 50% of the gross policy price, or as little as 5% to 15%.
4. Get multiple offers
Be prepared for your offers to vary widely. “People think one or two bids are the end all and be all,” says William Mountain, CEO of Institutional Life Settlement Advisors in Hollywood, Fla. “But this is a completely negotiated market. One offer gets doubled and tripled by another company.” It’s worth taking your time, and waiting for a good offer, keeping in mind the best offer might not be the first one.
5. Round up your paperwork
Your broker will provide potential buyers with a copy of your life insurance policy. However, buyers will also want to see your medical records in order to gauge the value of your policy. “We need a five-year medical history, including primary doctor and specialists,” says Mountain. He adds that obtaining these records can cost a few hundred dollars and can be a very lengthy process.
Why should I sell my life insurance policy?
Selling your life insurance policy may only be a smart move in certain financial situations.
If you can no longer afford to pay your life insurance premium, selling the policy can relieve the burden of a monthly payment and will put at least some of that money back into your pocket. Although there is always the option to simply cancel or surrender your policy to end monthly premiums, a life insurance settlement usually results in a larger payout and may therefore be a better option for some.
It may also be worth selling your life insurance policy if you need to cover a sizable unexpected cost. For instance, if you are diagnosed with a terminal illness and need to pay for treatment, you might be able to sell your life insurance policy and use the payout for medical bills. However, selling your policy is typically considered a last resort option as you may be able to borrow against your policy’s cash value to cover medical expenses if you have a permanent life insurance policy. If your policy has an accelerated death benefit, you can claim the money while you are still living to help pay for treatment.
Ultimately, selling your life insurance policy may be a good idea if the payout or lack of premium payments could benefit you immediately and you do not need to leave a death benefit to any beneficiaries.
Alternatives to selling your life insurance policy
A common reason for selling a life insurance policy may be the need for money. However, if quick money is what you need, then there are several alternatives to selling your life insurance, which are often easier and less complicated. Some options to consider before selling your life insurance policy are:
- Accelerating the term: Depending upon the type of policy and insurer, it may be possible to claim your life insurance money while you are still alive.
- Taking a loan against the policy’s cash value: Borrowing money against the total value of your life insurance policy comes with monthly interests and helps pay back the amount lent to you. Typically this is only possible if you have a permanent life insurance policy.
- Surrendering the policy: This may not result in a lot of money but surrendering your life insurance policy gives you access to some quick cash in the form of the surrender value while simultaneously ending any future premium payment requirements.
- Taking a personal loan: If you are in a tight spot, getting a personal loan from your bank is an easier alternative in most cases. Although you have to pay an interest, the rates are usually cheaper than traditional payday loans.
Frequently asked questions
It’s difficult to say how much money you can get for your life insurance policy. Payouts vary significantly, and are based on factors like the type of policy and its features, your age, your health, the value of your policy, the amount of coverage you have, the financial performance of your insurance company and more.
It will probably take at least a few months to sell your life insurance policy. However, the amount of time it takes depends on the number of offers you get and the quality of those offers. If you accept the first offer that comes in, it might only take a month. However, you might be waiting for several months to get a suitable offer, depending on the market.
You can do some research online to find a good broker. If you consult an independent advisor, they can also give you some recommendations. Before you hire a broker, find a few that have good reviews and set up a short interview with each. Ask about their experience, their process and, most importantly, their fees.
Most types of life insurance that an individual purchases directly can be sold once they are no longer needed. Term, whole life, and universal policies can all be sold on the secondary market. However, you will likely not be able to sell any life insurance policy provided by your employer or issued by the government. Group life policies also cannot be sold by an individual to another investor.