If you’re a life insurance policyholder who wants to know more about the process of selling the policy, then you’re at the right place. This article provides details on how to sell your life insurance policy for cash and other details which you might need to know as well.
The process of selling an existing life insurance policy for an amount which is more than the cash surrender value of the policy to a third-party institution/investor is known as a life settlement. Before selling the life insurance policy, policyholders must check their eligibility. The factors that must be considered for eligibility are-
- Policy Type- This defines the kind of policy that the holder possesses such as Universal policy or Whole Term policy.
- Health conditions and age of the policyholder- Often, people who choose to sell their life insurance policies are older than 65 years or suffer from a serious medical ailment.
- Policy Size- A life insurance policy with a face value of $50,000 – $100,000 can be sold.
Policy owners can choose to sell their life insurance policies for several reasons. Some of them are-
- If the policy owner can no longer afford to pay the life insurance policy premiums, they can then choose to sell it for cash instead of letting the policy lapse. Policy lapse can cause severe losses if left unchecked.
- Policy owners who are over 65 years or who are suffering from chronic diseases may choose to sell their life insurance policy if they no longer need it.
- Policy owners can choose to sell their term policies that are closer to the expiration date.
- Policy owners who are in dire need of money to cover personal expenses like long-term care, medical bills or for surgeries can sell their life insurance policy.
- Policy owners without any dependants who rely on their income can sell their life insurance policy.
Selling life insurance policies have several attractive pros such as-
- Policy owners can enjoy a relaxing retirement life as they get extra money from a life settlement.
- Life settlements give a lump sum cash payment almost instantly to its sellers.
- Policy owners can free themselves from the responsibility of paying expensive policy premiums.
- Covering medical bills, costs of expensive surgeries and long-term health care is easier with life settlement because of all the extra cash.
Life settlements are just one of several alternatives. Policy owners can consider these alternatives and decide the appropriate one according to their needs-
- They can choose to borrow money from their cash-value life insurance policy. This option is widely chosen by owners who are older than 65 years. This option is free of any tax, and also, the life insurance policy remains intact.
- Terminally ill patients can access the death benefit of their life insurance policy earlier than the specified date. This option results in a reduction of the total death benefit by the amount borrowed.
- Withdrawing funds from the life insurance policy is another viable option which can be chosen by the policy owners. The cap on the withdrawal amount usually depends on the type of insurance policy purchased and the company which sold the life insurance policy.
Let us now take a look at the process of selling a life insurance policy.
The selling value of a life insurance policy has to be determined by appraising it. The cash value of a policy is affected by several factors such as the face value of the insurance policy which is widely known as the death benefit, the life expectancy of the insured, and the total cost of all the future policy premiums to be paid.
Institutions that buy life insurance policies from their holders scrutinize all these factors carefully and deduce an estimate of the cash value that can be paid to the owner while achieving a significant return/profit from purchasing the policy.
Policy owners must comprehend all the rules involved in the process of selling their life insurance policy on their own or with the help of a financial advisor. They must enquire several policy buyers, compare the offers received and choose the best one. Also, they can consult a financial expert to know about the tax liability that they may be subjected to in the process of a life settlement. I hope this article gave an answer to the question- “how to sell your life insurance policy for cash?” and helped you understand the entire process better. Thanks for reading!