Life insurance is an insurance policy that many people feel is an unnecessary expense as there is very little benefit while the insured is alive. This sentiment can be especially common for homeowners with adult children or for people with very few assets and no dependents, since a beneficiary does not necessarily need a payment after death to avoid financial hardship. If you have an existing life insurance policy and feel that it is no longer valuable to you, it may be time to consider selling your policy. Paying off your policy for a cash settlement can be a quick way to get some cash available for other expenses while alleviating the burden of monthly premium payments. While it is possible to sell your policy, there are several factors to consider when looking for a buyer to ensure you get the best value.
how to sell your life insurance policy
A life settlement is the more technical term for selling your life insurance policy for a lump sum cash payment. Investors are typically the ones looking for life insurance policies to purchase and add to their portfolio.
Investors buying their policy on the secondary market ideally look for sellers who are over the age of 65 and have a limited life expectancy. the reason those policies are more profitable for an investor is that when you die, the buyer gets the policy’s death benefit.
Naturally, investors are most interested in high-value policies. Contributing factors include the total value of the policy, as well as the life insurance company’s issuer rating, where “a” or better is preferred. Investors may also be looking for universal life policies with low or flexible premiums to pay as few premiums as possible. Although your policy may still be sold if you have another type of policy, the offers may be lower.
To sell your policy, you’ll need to find a life insurance broker or settlement company. They will act as intermediaries in the transaction and can help you find an interested buyer. just keep in mind that brokers and settlement companies charge a fee, which means you won’t get the full value of the sale price.
5 tips for selling your life insurance policy
Selling your life insurance policy is not easy. in fact, it can be difficult to find an investor who is willing to make you an acceptable offer. however, there are ways you can maximize your payout. Here are five tips to keep in mind:
1. know the process
Selling your life insurance policy is a complicated thing, so before you jump into the process, it helps to have a solid understanding of how it works and what to expect. Make sure you know what type of policy you have, how much coverage you have, and how much cash value is in the account. Also check the rules and regulations for the sale of life insurance policies in your state.
2. consider hiring an independent consultant
Find someone who is an expert in life insurance settlements and ask them to assess the value of your policy. Independent advisors can offer appraisals of the value of your life insurance policy. they can also tell you about features that can add value, recommend brokers, and help fill in the gaps.
3. find a trusted broker
When trying to find the right broker, a good process is to interview not one, but several. ask questions like: what can you do to improve the offers I receive? what is your commission structure? is it negotiable? are you licensed in your state? Are you willing to give discounts if I pay medical expenses? pay close attention to transaction costs as they can easily eat up your profits. some experts suggest that brokers may charge 30% to 50% of the gross price of the policy, or 5% to 15%.
4. receive multiple offers
be prepared for your offers to vary widely. “People think that one or two offers is the end and the end,” says William Mountain, CEO of Institutional Life Liquidation Advisors in Hollywood, Florida. “But this is a fully traded market. an offer is duplicated and tripled by another company”. It’s worth taking your time and waiting for a good deal, keeping in mind that the best deal might not be the first.
5. round up your paperwork
Your broker will provide prospective buyers with a copy of your life insurance policy. however, buyers will also want to see your medical records to gauge the value of your policy. “We need a five-year medical history, including a GP and specialists,” Mountain says. She adds that obtaining these records can cost a few hundred dollars and can be a lengthy process.
why should i sell my life insurance policy?
selling your life insurance policy may only be a smart move in certain financial situations.
If you can no longer afford your life insurance premium, selling the policy can ease the burden of a monthly payment and put at least some of that money back in your pocket. Although there is always the option of simply canceling or surrendering your policy to end the monthly premiums, a life insurance settlement usually results in a higher payout and therefore may be a better option for some.
It may also be worth selling your life insurance policy if you need to cover a significant unexpected cost. For example, if you are diagnosed with a terminal illness and need to pay for treatment, you may be able to sell your life insurance policy and use the payment for medical bills. however, selling your policy is generally considered an option of last resort, as you can borrow against the cash value of your policy to cover medical expenses if you have a permanent life insurance policy. If your policy has an accelerated death benefit, you can claim the money while you’re still alive to help pay for treatment.
Ultimately, selling your life insurance policy may be a good idea if paying or not paying the premium can benefit you right away and you don’t need to leave a death benefit to any beneficiary.
alternatives to selling your life insurance policy
A common reason for selling a life insurance policy may be a need for money. however, if quick cash is what you need, then there are several alternatives to selling your life insurance, which are often easier and less complicated. Some options to consider before selling your life insurance policy are:
- Term Acceleration: Depending on the type of policy and insurer, you may be able to claim your life insurance money while you’re still alive.
- Taking a loan against the cash value of the policy: Borrowing money against the full value of your life insurance policy includes monthly interest and helps pay back the amount lent to you. This is usually only possible if you have a permanent life insurance policy.
- Take out a personal loan: If you find yourself in a bind, taking out a personal loan from your bank is an easier alternative in most cases. Although you have to pay interest, the rates are usually cheaper than traditional payday loans.
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how much can i get for my life insurance policy?
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how long does it take to sell a life insurance policy?
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how do I find a reputable broker?
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can you sell any type of life insurance policy?
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Surrendering the Policy: This may not result in a lot of money, but surrendering your life insurance policy gives you access to some quick cash in the form of surrender value while ending any premium payment requirements in the future.
frequently asked questions
