The #1 Best Way to Sell my Life Insurance Policy
Selling your life insurance policy is often a more lucrative option rather than surrendering your policy or letting it lapse due to not being able to pay for it.
Why sell your life insurance policy?
- You will make less than the death benefit, but more than the cash surrender value
- The funds will be available now (rather than when you pass away)
This can prove extremely beneficial especially if you have incurred high medical costs due to a serious, long-lasting illness and need to pay for medical bills or long-term care.
Who Buys Your Life Insurance? Can I sell my Life Insurance Policy for Cash?
Individual investors don’t purchase life insurance policies.
Large institutional companies called Life Settlement Providers specialize in buying thousands of life insurance policies every year – and they are regulated by the state. Buyers look for a specific type of life insurance policy.
Some prefer smaller policies and others have preferences about the insured person’s health status.
All of these different buyers have a different process and each is looking for different kinds of policies to purchase. Some prefer to purchase large policies and some prefer small.
Some prefer older insured persons and some prefer younger insured persons. It’s important to find a partner to help navigate these different buyers and make sure you get the best offer for your policy.
Who Qualifies for Life Settlement?
Candidacy for a life settlement depends on several factors. The most important aspects are age, policy size and policy type. Qualification is based on a buyer’s willingness to pay for the policy and how much economic value is in the policy.
Ideal candidates for life settlements are seniors, age 65 and older. Age is an important factor because the insured’s life expectancy is the most important variable in calculating a life settlement offer. In general, the shorter someone’s life expectancy, the more valuable the life settlement offer will be. Thus, older individuals who naturally have shorter life expectancies tend to have more valuable policies of greater interest to investors; similarly, individuals who are younger than 65 but have a serious illness (and therefore reduced life expectancy) may also have policies that qualify for sale.
The policy that is being sold generally must have a death benefit of at least $100,000. This is because buyers have a fixed due diligence cost structure for each policy, and usually don’t want to purchase smaller policies where they cannot generate a sufficient investor profit after their own expenses. As the industry continues to mature, we expect buyers to become more amenable to purchasing smaller policies.
Policies must also have been owned by the insured for a minimum number of years. The exact required number of years varies on a state by state basis. For instance in California, it is two years. This is to prevent individuals from taking out a policy for the sole reason of selling it. Exceptions can be made to this minimum ownership period rule if there has been a material change in the insured’s life, such as divorce, retirement, death of a spouse, etc. Again these exceptions vary on a state by state basis.
Finally, the policy must be a whole life, universal life, or a term life policy that is convertible into one of those types of permanent policies. Standard term policies and premium financed policies generally do not qualify for life settlements, because of the additional risk to the investor. Group life insurance policies can also qualify, if they are permanent or convertible term policies (and are actually transferrable in the first place).
When Would You Consider Selling Your Life Insurance Policy?
Most of the situations where a policyowner would consider selling a life insurance policy will fall into one of the three following categories: (1) the insured can no longer afford the cost of life insurance. (2) the insured needs additional liquidity for some other expense. (3) the insured no longer needs the coverage of life insurance.
- Unaffordable Premiums. Premiums can become unaffordable for two reasons. Either the financial situation of the insured changes and they cannot afford premiums they expected to pay. Or, the premium cost escalated as the insured aged – a common feature of universal life insurance policies.
- Needs Liquidity. A common expense is a large and/or ongoing medical cost. Another example is if the insured’s retirement account is underfunded or if the insured wants to help pay for a grandchild’s college education. The insured may also decide that they want to purchase a vacation house or upgrade their retirement living standard.
- Unneeded Coverage. If the policy beneficiary is the insured’s children, the children may now have become financially independent and no longer need the safety net. If the policy beneficiary was the insured’s spouse, that insured may have passed before the insured, rendering the policy’s purpose of coverage unnecessary. Notably, though, if the policy death benefit is unneeded but is otherwise affordable to maintain, the policyowner might consider keeping it for the same reason the investor would want to buy it: the policy still has material economic value to keep paying the premiums and hold until death.
- Sometimes, selling makes sense. Older people may no longer need life insurance bought to protect a spouse who has since died or children who have reached financial independence. Perhaps rising premiums have become a financial struggle or other needs have grown more pressing.
- At that point, most policyholders just stop paying premiums. They take the modest cash value, if there is any; if it’s a term life policy, there is no cash value. In any event, the insurer never pays a death benefit, an advantage the insurance industry has come to rely on.
How to sell my Life Insurance Policy
Selling isn’t all bad, especially if you no longer want the policy or you can’t afford the premiums. If you do decide to sell, take these steps to make sure you get the most money:
- Understand the rules. Your life insurance policy has rules about selling, and your state laws regulate the process. Make sure you understand these before you try to sell. If you don’t fully understand, an independent financial adviser can help sort things out.
- Don’t take the first offer. There are no set values for life insurance policies, and the offers you receive from buyers can vary widely. Review several to make sure you’re getting the best deal.
- Talk to an expert. Consult an accountant to see what tax liability and eligibility changes you will face after the sale.
- Check your debts. If you have large debts, your creditors may have a claim to any cash you receive from your life insurance settlement. If you have debts, discuss them with a financial adviser before you sell.
The bottom line: If you don’t want your life insurance policy, it’s worth a call to find out what you could get, but be cautious about going through with it. Make sure you’re getting the best possible deal before you sign off.
Turn your Life Insurance Policy into Cash
Mintco Financial is here to help you get insured. But when that insurance loses it’s usefulness to you, 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 if you decide to sell.
Contact us today at 813-964-7100 or 716-565-1300
Email us email@example.com