If you’re looking for some extra cash, you might consider selling your life insurance policy.
Just the thought can sound creepy, but these deals can be a profitable way to liquidate a life insurance policy, rather than cashing it in. They’re called life settlements. And it’s an investment game played by sophisticated investors.
Navigating the life insurance settlement market can be tricky, though. It’s policed by states, not the Securities and Exchange Commission, so regulations vary. There’s no standard commission structure, so the amount of money you can get for your policy varies significantly. Each settlement case is individual, so there are no cookie-cutter guidelines.
Another thing to consider is that it’s a buyer’s market right now. “You will get lower payments today than three or four years ago,” says Steve Leimberg, publisher of Leimberg Information Services. Life settlement prices can be up to 50 percent lower.
However, that doesn’t mean it’s a bad time to sell your policy. It just means you need to be extra diligent and do some research beforehand. In this article, we’ll explain how to sell your life insurance policy so you get the maximum return.
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 looking for sellers who are over age 65 and have limited life expectancies. The reason is that when you die, the buyer gets the death benefit of the policy.
Naturally, investors are the most interested in high-value policies. Specifically, they’re looking for larger policies close to $1 million where the issuers are rated “A” or better, says Leimberg. “They’re also looking for universal life policies with low or flexible premiums,” he says. “They want to pay as few premiums as possible.” You’re likely to get lower offers for other policies.
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 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.
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 adviser. 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, says Glenn Daily, a fee-only insurance adviser in New York City. “And they can recommend brokers.” If you still have questions about the settlement process, they can help you fill in the gaps.
3. Find a reputable broker. Daily advises sellers to find several reputable brokers and interview them. Ask questions like: What can you do to improve the offers I get? What’s 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. Leimberg says that brokers can charge as much as 30 percent to 50 percent of the gross policy price, or as little as 5 percent to 15 percent.
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 these records can cost a few hundred dollars.
Who should sell their life insurance policy?
If you need cash quickly, many people think that selling their life insurance policy is a smart move. However, it’s only a good option in certain situations.
If you can no longer afford to pay your life insurance premium, selling the policy can relieve the monthly payments and put some money back into your pocket. Life insurance settlements usually result in a larger payout than what you would get from cancelling or surrendering your policy.
It’s also worth selling your life insurance policy if you need to cover a sizable emergency cost. For instance, if you get diagnosed with a terminal illness and need to pay for treatment, you could sell your life insurance policy and use the cash for medical bills. Even with a terminal illness rider on your policy, you might get more money by selling your policy.
Ultimately, selling your life insurance policy should be viewed as a last resort option. If you need money to pay for medical expenses, first consider borrowing against your policy’s cash value. If your policy has an accelerated death benefit, you can claim the money while you’re still living to pay for treatment and palliative care. If you can no longer afford the premiums, you can always give up your policy and take the surrender value.
Frequently asked questions
How much can I get for my life insurance policy?
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 your age, your health, the value of your policy, the amount of coverage you have, the financial performance of your insurance company and more.
How long does it take to sell a life insurance policy?
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.
How do I find a reputable broker?
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.