How to tell if you can sell your life insurance policy
- Answer a few simple questions
- Get an instant online estimate
In the life insurance business, when a policy owner sells a policy it’s known as a “life settlement.” If you’re reading this, maybe you’re considering selling a policy you have. We’re here to offer information and help you if we can.
First, know that not every policy can be sold. Whether you can sell yours will depend on a few circumstances, as well as the policy itself. The most important factors a potential buyer will consider are your health, the amount of your policy, and your life expectancy.
By using our quiz, you can find out if your policy qualifies — as well as how much you might be able to sell it for.
In most cases, to sell your policy you’ll need to:
The type of life insurance policy you have will also make a difference.
The typical candidate for selling a life insurance policy is someone over the age of 65 who has a policy with a face value of more than $100,000 and whose health has declined since the policy was originally issued.
A potential buyer will take many different factors into consideration before making an offer to buy your policy. If your policy is eligible to be sold, you can expect to receive from 10% to 35% of the amount that would be paid when you die. In certain situations, you could receive more.
A few factors that will affect the amount you may be offered:
The chart below will give you an idea of how your health status can affect the amount you could receive for your policy.
Health condition | Type of health condition | Value of policy |
---|---|---|
Very Healthy | No chronic conditions | Your policy doesn’t appear to be eligible for sale |
Some Medical Issues | Chronic but manageable conditions, such as diabetes or hypertension | 10%–25% of the death benefit |
Serious Medical Issues | Severe conditions, such as cancer or coronary artery disease | 25%–35% of the death benefit |
Terminal | Irreversible conditions that severely reduce life expectancy, such as late-stage cancer | 35%+ of the death benefit |
We believe that owning life insurance is responsible; however, your life can change and so can your life insurance needs.
There may come a time when you no longer need your life insurance policy, such as when your kids are grown or you have outlived your spouse.
Being able to sell your policy in those instances – rather than canceling it – is definitely a better financial decision.
Selling your life insurance doesn’t always make sense, and in some cases you can’t, even if you wanted to.
If the reasons you purchased your life insurance are still in place, such as having young children, then you’re much better off keeping your policy in place.
If selling your policy makes sense, then you must still meet certain requirements to qualify. Your age, your health, and the type of policy you have all factor into whether you’ll be able to sell your policy.
True Blue is here to help you get insured. But when that insurance loses its usefulness, we can help you turn it into cash. We’ll help you find out if your policy qualifies, and we’ll make sure you get the most cash possible if you decide to sell.
The life settlement business has exceeded experts’ forecasts. For example, a 2016 report by Conning, a company that does insurance research, predicted annual growth in life settlements of 1%–2%.1 But the market has done far better, yielding growth rates of 34%, 50%, and 19% for 2015 through 2017.2
That same Conning report predicted that life settlements would have an average annual volume of $1.8 billion, but a report released in June 2018 showed the previous year’s volume was $2.83 billion.3
And while the Conning report forecasted transactions of about $1.7 billion in face value in 2016,4 the actual amount transacted that year was $2.5 billion.5
People consider selling their life insurance policies for a variety of reasons. Here are a few situations in which you might be thinking about it as an option:
Not all life settlements are alike. If your policy qualifies to be sold, you might choose to do a straight-up cash deal. But there are other options that might be better, depending on your situation.
A lump sum of cash is offered in exchange for the policy.
With this type of offer, the policy owner retains a portion of the face amount of the life insurance policy. That amount can be irrevocably designated to a beneficiary chosen by the policy owner. This type of offer is usually higher than a cash offer because the amount is not paid out until the policy matures. With this type of offer, the policy owner does not have to pay premiums for the retained amount of life insurance.
A combination of a cash offer and a retained death benefit can be used to maximize the policy’s value to the policy owner. In some cases, the best option could be a cash offer to help pay for expenses, along with a $50,000 retained death benefit to cover final expenses.
An accelerated death benefit rider can provide living benefits similar to selling your policy. In the case of a terminal or chronic illness, the rider may pay out a portion of the death benefit early.
Alternatively, a return of premium life insurance rider gives the premiums paid into the policy back at the end of the return period.
Check to see if your policy has either of these riders, as they could affect the amount you would receive in a life settlement.
The broker or company that handles your life settlement will pay the costs of gathering your medical information and several other steps involved in the sale, such as verifying coverage and obtaining life expectancy reports. Those costs — which can exceed $1,000 — become part of the amount the buyer pays for your policy.
Sometimes there are custom authorizations that need to be signed during the documentation-gathering step. That can lengthen the process.
Once the contracts are signed and returned to the closing firm, all of the paperwork is reviewed. If everything is in order, the buyer places the purchase funds in escrow.
After escrow confirms that funds have been received, the buyer is given the insurer change forms (which you have already signed) to sign. The signed ownership and beneficiary change forms are then submitted to the life insurance carrier for processing.
Usually, within three business days of insurer confirmation letters being received (showing that the ownership and beneficiary have changed), the funds are paid out. Depending on which state you live in, you might have a rescission period in which you can back out of the transaction. When that rescission period is over, the remaining escrow amount is released to pay for closing fees, broker commissions, and referral fees
Yes. A life insurance policy is an important financial asset. The policy represents a claim to a series of potential future cash flows. Because the policy itself can be objectively categorized as an asset, this means that it necessarily ought to have some sort of monetary value.
Whether you can sell your life insurance policy depends on your personal situation and the specific characteristics of the policy. In the instance that you can sell your policy, the amount of cash you will receive depends on what the market is willing to pay (which changes over time).
A few variables will affect your ability to sell your life insurance policy. Typically, you need to be at least 65 years old and have a policy that is expected to last longer than you are expected to live. Obviously, neither you nor your insurance company can predict the exact date of your death. Instead, this prediction is generally based on your current health and the average life expectancy for your given demographic.
Many factors influence the current exchange value of your life insurance policy — for example, the total amount you are covered for, the amount (if any) of equity you have already accumulated, and the amount of premiums you still have to pay. If the premiums due are relatively low and the coverage is relatively high (typically $100,000 or above), then your policy may be a very attractive asset to certain investors.
The most obvious reason you would want to sell your life insurance policy is that you no longer need the coverage and you would prefer to get cash for it. If you have outlived your spouse, your children are grown and financially independent, or you no longer have any financial dependents, then it might make much more sense to exchange your policy for cash instead of continuing to pay for unnecessary coverage.
Begin by asking yourself a few important questions:
A number of factors will influence the cash value of your life insurance policy, so we can’t provide a definitive answer to that question without specific information from you. However, there are a few guidelines that can give you some ideas.
Typically, you can expect to receive about 20%-25% of your policy benefit upfront, in cash. This means that if you have a policy benefit that’s worth $200,000, then you should be able to “cash-out” for approximately $40,000-$50,000.
The Life Insurance Settlement Agency (LISA) recognizes that institutions typically prefer to buy universal life insurance policies with benefits exceeding $100,000 from people who are older than 65. However, because there are people outside of those circumstances who want to sell their life insurance policies, there is an ample number of exceptions to those general rules of thumb.
You would get paid as soon as the necessary documents have been signed and the insurance company confirms that the owner and the beneficiary on the policy have been changed. It’s important to note that when you sell your life insurance policy you forfeit any money that would normally be paid when you die.
Unless you choose a retained death benefit or hybrid settlement offer, you give up the beneficiary rights when you sell your life insurance policy.
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