Sell Your Life Insurance Policy

Find out in seconds if your policy qualifies for a life settlement!

What is a Life Settlement?

A life settlement is the process by which an existing life insurance policy is sold to a third party for a lump sum cash payment. The payment is always larger than the cash surrender value, but less than the overall death benefit.

The following life settlement guide will help you determine if you qualify, describe how the process works, discuss the benefits of a sale and more.

How to Sell a Life Insurance Policy?

First, you’ll need to have the life insurance policy appraised to see if it qualifies and to determine if any value exists. After reviewing the insured’s age, health, and policy information, a bid may be placed on the policy. If an offer is accepted, a lump sum cash payment is paid. The buyer will become the beneficiary and continue to pay all future premiums. The buyer will then collect the death benefit when the insured dies.

Do I Qualify for a Life Settlement?

  • 65 years old or older
  • Own a life insurance policy of $100,000 or more
  • Recent decline in health

Can I Sell My Term Life Insurance Policy?

Yes! Term life insurance, also known as “pure” life insurance, is considered the most straightforward form of protection. By paying premiums on a monthly or annual basis, you will be covered for a designated period of time, hence the name “term.” These policies are typically sold in lengths of five, 10, 20, or 30 years. If you pass away during that time frame, your beneficiaries will receive the full death benefit.

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If you outlive the term, however, the cost of the policy increases dramatically, often leading policyholders to abandon the policy altogether. Rather than lapsing your term policy or surrendering it back to the insurance carrier, there are other options available to you if you want to get more from your underperforming life insurance policy.

Some policyholders decide to revamp their entire life insurance plan by selecting to purchase another policy that better suits their needs. This tactic may work in certain cases, but if you are already struggling to keep up with payments, it may not be wise to invest in another coverage plan.

Pursuing a life settlement is often considered the best of both worlds. By selling your policy on the secondary market, you can free yourself of your life insurance (and your costly premiums) while receiving a lump sum payment for your plan. A life settlement can offer financial stability when you need it most.

Why Would I Sell My Life Insurance Policy?

  • Are my life insurance premiums becoming a burden?
  • Have I experienced a major medical event or change in my health?
  • How will my beneficiaries fare without access to my policy’s death benefit?

There are many reasons to sell a life insurance policy. Often, seniors decide to sell because they want to pad out their retirement savings or manage daily expenses. Many policyholders need money to put toward medical bills or cover the cost of assisted living or long-term care. Others use their life settlement to fund a trip or pay for their grandchildren’s college education. The life settlement industry has empowered people with financial freedom for nearly two decades, proving time and again that there are real benefits to selling a policy in favor of letting it lapse or struggling to keep pace with expensive monthly payments.

In some cases, premiums for universal life policyholders have increased dramatically. For some seniors, this means hundreds, or even thousands, of dollars have been tacked onto their monthly bill. With many policyholders already on a fixed income, increases this steep are simply not sustainable. In cases like this, it makes good financial sense to let someone else take over payment.

How Much Money Do I Get?

When determining payout, life settlement providers calculate how much they expect to pay into the policy before they receive the death benefit. This is how they determine if the investment is worth it. Factors life settlement companies consider when determining a policy’s value are life expectancy, expected cost of future premiums, and death benefit.

What is a Viatical Settlement?

A viatical settlement is the sale of a life insurance policy, in exchange for immediate cash payout. There are two types of viatical settlements:

  • The first type is for an insured person who is terminally ill, which is defined as having a life expectancy of less than 2 years.
  • The second type is for an insured person who is chronically ill, which is someone who can no longer perform two or more of the following activities: eating, using the toilet, bathing oneself, or dressing oneself.

A viatical settlement is very different from a life settlement, since viatical settlements are exclusively for the terminally and critically ill.

Pros and Cons of a Life Settlement

Pros – Examples

  • Put money towards retirement, medical, or long-term costs
  • Pay for residential needs, such as assisted living
  • Cover daily living expenses
  • Avoid paying premiums on policies

Cons – Examples

  • Potential tax consequences
  • May become ineligible for Medicaid
  • Creditors are paid off first (if any exist)
  • Eliminates money that would be left to a beneficiary

How Will Your Life Settlement Be Taxed?

After selling your life insurance, you will be taxed by the federal government on a three-tiered basis:

  1. Amounts received up to the tax basis (the total you paid in premiums) are free of income tax.
  2. Amounts received that are larger than the tax basis up to the amount of the cash surrender value are taxed at standard income rates. 
The cash surrender value is the amount of cash that you can withdraw if you surrender your policy and let it lapse.
  3. Amounts received that exceed the amount from tier two are taxed as long-term capital gains.

You may be subject to additional taxes and fees imposed by state and local government.

If you are at least 65 years old and own a life insurance policy with a face value of $100,000 or more, you may benefit from a life settlement. Get a free, no-hassle quote today and see if you qualify.

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