A Guide to Selling Your Life Insurance Policy

When you buy a life insurance policy, it’s a long-term commitment financially.

However, if you can’t pay the premium, or if you don’t need it any longer, you can also sell your life insurance policy. Here’s how to go about selling it.  

Typically, sellers of life insurance policies are over the age of 65. However, there are times when younger persons may also qualify if they have certain medical conditions per the Life Insurance Settlement Assoc. or LISA as it’s frequently referred to. When you have a Universal Life Insurance policy that has benefits over $100,000 it’s most desirable to sell, however, smaller term life and other policies may also be sold per LISA.

Settlements are typically pooled together and they’re owned by institutional investors such as banks, insurance corporations and a few individuals.

There are also similar transactions that are called viatical settlements. These are for those who have a terminal illness and aren’t expected to make it more than 24 months. “Surrendering” a policy is a different type of action, in this, you’ll contact insurers to surrender the policy and receive back a portion of the cash value of the policy.

We’ll Go Over The Following:

How Life Insurance Settlements Work

Life Insurance Settlement Amounts

Potential Pitfalls Of Life Insurance Settlements

What To Ask Prior To Selling Your Life Insurance

Selling Your Life Insurance Safely

How Life Insurance Settlements Work

Life insurance settlements can be done via a broker or a provider. According to LISA, the difference is:

Brokers will solicit multiple bids on the insurance policy in an effort to get the best possible sales price. Typically, most sales are done by brokers.

Providers, on the other hand, are the buyers of the life insurance settlement. You can sell directly to a provider and bypass the broker.

After you’ve found a broker or a provider, you’ll go through the typical process as follows:

You’ll give the details of your policy, and your medical records to the broker or the provider. If using a broker, they’ll shop the potential for the policy buyers. The buyers will then calculate the expectancy of your life based on what your medical records reveal.

If they give you an offer, you may then sell the policy.

The buyer will become the new owner of the policy and they will begin to pay the premiums of the policy. The buyer may also resell the policy to another party that will take over the payments of the policy.

Occasionally, you’ll need to check in with the buyer in order to confirm that you’re still alive. Example, the buyer may periodically have to send a postcard to you that you simply sign and return to verify that you’re alive. You can go over these details with the broker or the buyer prior to the sale.

When you do die, the owner of the policy then receives your death benefits.

Life Settlement Amounts

Your offer is going to be dependent on the expectancy of your life. The face amount of your policy and what the buyer can expect to pay out in the premium while you’re alive.

The money will be taxed as an income or a capital gain depending on the details of the sale.

Potential Pitfalls Of Life Insurance Settlements

When you sell your policy, you can anticipate that you’re going to make some money, however, there are a few drawbacks:

It can be challenging to determine if you’re getting the right price for the policy.

Commissions may be eaten up by as much as 30 percent of the settlement offer per the Financial Industry Regulatory Authority.

You’ll have to pay the taxes on the money that you do receive from the life insurance settlement. The death benefit of the policy is tax-free to the beneficiaries.

If you’re family still relies on your financially, they’re going to lose that safety net when you die.

If you’re on public assistance, the settlement may revoke your eligibility for that assistance.

What To Ask Prior To Selling Your Life Insurance Policy

You may get a great deal on your settlement. However, prior to the sale, you should ask yourself these questions:

Do I still need the life insurance coverage? If I can afford the premiums and have beneficiaries who still rely on me I may be wise to keep this policy.

Are there other means to pay this premium? When the premium is too high there are often other ways to pay it such as a loan from the policy that will reduce the death benefit, but still, keep something in place.

Can I trust the broker or the buyer or both? Seek only brokers who are licensed via the state insurance dept. Always understand how much of the personal information the buyer has access to as well. You don’t want to work with a buyer who will rush and pressure you into a decision.

Selling Your Life Insurance Policy Safely

Always follow these steps to ensure that you’re getting a great deal if you truly want to sell your life insurance.

Don’t respond to solicitations for your policy. It’s wiser to find a life settlement broker via the financial advisor or insurance agent that may also be licensed to do such a settlement. The more you understand about your life insurance policy and options, the better. Research the broker for license and any complaints against them before you sell. Keep in mind that you don’t have to sell just because someone bids.

David Jackson

David is a personal finance expert, a professional male model, and an entertainment writer.