Sell Any Type Of Life Insurance
How Much Can You Sell Your Life Insurance For?
Selling Your Life Insurance Policy 101
Over time, the need for life insurance may change. When the original purpose of a life insurance policy no longer exists, the traditional decisions are to lapse or surrender the policy back to the carrier. This many times results in much less than what could be obtained if the policy was sold for fair market value.
Why would someone sell their valuable life insurance policy? Over 85% of all universal life policies are either lapsed or surrendered, so the decision to let a life insurance policy go is very common. Selling this same policy is a more beneficial way for a policy owner to maximize how the life insurance policy works for them.
What’s Life Settlement?
What are some of the key elements that determine if selling a life insurance policy is an option? Selling a policy is one of the least known options for parting with a policy. Why do so many policy owners sell their policies? Is a life settlement the best option for you? How can the maximum offer for your policy be obtained?
Let’s find out.
Life Settlement Definition
Before we begin, we need to understand just what Life Settlement is? What is the basis of a Life Settlement?
Life Settlement is the sale of an existing life insurance policy to an investor for an amount greater than the cash surrender value that could be received from the life insurance carrier. Life Settlement provides a valuable option to policy owners that no longer need (or no longer want to pay premiums for) their life insurance policies. In other words, Life Settlement allows a policy that is being lapsed or surrendered turn from trash to cash.
Just how big of an opportunity is selling your life insurance policy? Do most policy owners miss out on this opportunity?
Estimated Amount of Life Insurance That Lapses Annually
Some estimates show that over 90% of life insurance policies lapse before maturity. Life Settlement provides an alternative worth exploring.
Lapsing Life Insurance That Could Qualify For Life Settlement
The Life Settlement opportunity is growing as term policies reach conversion deadlines and the baby-boomer generation retires.
The Potential Annual Payouts To Policy Owners Who Qualify
Last year there were roughly $3 billion in payouts to policy owners, making this a greatly under-utilized opportunity.
Sell Versus Keep A Life Insurance Policy eBook
Download the “Sell vs. Keep” eBook to discover the value of life insurance, reasons owners sell a policy & reasons owners keep a policy. This guide will help layout some of the key things to consider when thinking about selling a policy.
How The Process Works
Similar to when applying for a life insurance policy, selling a policy requires an application. Keep in mind, while an initial estimate can be provided, real offers are made once full medical and policy underwriting are completed. It is important to note that while an initial estimate may seem high or low, once the insured’s health and policy specifics are reviewed, the real offer amount may be much higher.
Once an application is signed, the most important next steps are obtaining the medical records and policy illustrations as well as policy documents. The time it takes to retrieve medical records varies by doctors office, so this part of the process can take up to 2 months.
All the gathered requirements are then analysed and additional summaries and reports are generated by the global network of buyers who then review and make offers.
Brokers vs. Providers
This process is typically handled by either a Broker or Provider, who is licensed in the policy owner’s state. By working with a professional company that specializes in this the maximum offer can be reached…but how can the best offer be found?
A Provider represents buyers of life insurance policies, and is incentivized to purchase policies for as little as possible.
A Broker represents policy owners, and is incentivized to obtain the highest offer for the policy owner.
Therefore, working with a Broker ensures a policy is placed into a competitive environment where the maximum offer can be obtained. This is of utmost importance when considering the sale of a life insurance policy.
Policy owners who sell their life insurance policies through a broker on average receive over FOUR times what they would receive if they lapsed or surrendered their policy. This is accomplished through a broker creating competition among a global network of buyers on behalf of the policy owners who benefit the most.
What You Should Know About Eligibility
An offer for a life insurance policy is never guaranteed, and is determined based on eligibility. Each case is reviewed depending on the unique individual and policy eligibility. Here are some of the key eligibility points…
- <65 – The insured must have significant health issues to obtain an offer.
- 65-70 – The insured must have several chronic health issues to obtain an offer.
- 70-75 – The insured must have some health issues to obtain an offer.
- 75+ – The insured still must show some health impairment but this is less important as the insured gets older.
Premiums are considered as a percentage of the policy face amount. For example, on a $100,000 policy, a premium of $3,000/year would be considered a premium of 3%. If the policy being sold is a term policy, the conversion premium amount is often what is used, not the low term premium. Following shows how different premium ranges are treated…
- <2% – Exceptionally low premium
- 2%-4% – Low premium
- 4%-6% – Mid-range premium
- 6%-9% – High premium
- 9%+ – Very high premium
How Much Can You Receive For Your Policy?
The most important question is often, “How much can I get for my policy?”. While an Instant Estimate is helpful, how a policy is valued depends on the insured health & policy specifics. Policies with exceptionally low premiums can obtain high offers, while policies with very high premium can struggle to obtain any offers at all. The only way to know what the true fair market value of a life insurance policy is, requires a life settlement application to be completed and full underwriting done.
How Pricing Works:
When evaluating a life insurance policy as a potential investment, the Internal Rate of Return (IRR) is used as the measure of performance. The importance of accurately determining life expectancy requires one or more life expectancy reports being obtained. Combined with projected on-going premium payments, this allows a determination of IRR. Most funds target an IRR between 12% – 15% in order to offset for incorrect life expectancy estimates.
For this reason, a fairly healthy 72 year old may obtain a low offer because the fund expects to pay premium over the next 15 years and still need to show a certain rate of return. It is important to note that a fund making $100,000 after 3 years is much different than a fund making $100,000 after 15 years. The time value of money comes into play, so offer amount is not relative to the amount made, it is relative to what the annualized return is considering the time value of money.
How To Maximize Your Offer:
The best way to maximize an offer for your life insurance policy is to work with a licensed professional that can navigate the process and ensure the most appropriate life expectancy reports are obtained, as well as the most comprehensive network of funds are a part of the process.
Why Do People Sell Their Life Insurance Policies?
Are you thinking of selling your life insurance policy due to expensive premiums? Do you want to discontinue it because you no longer have financial dependents?
The act of selling your life insurance coverage is referred to as a life settlement. In fact, a life insurance policy is considered “real property,” and you can sell it to a third party for cash. The buyer will then continue to pay the premiums, and he/she will get the death benefit in the event of your death.
So, if you’re planning to sell your life insurance coverage, here’s everything that you need to know about the process.
How Selling a Life Insurance Policy & Life Settlement Works?
It’s rare to find an individual who may want to purchase your life insurance coverage. But there are life settlement companies and brokers who might be interested in buying it.
You have more chances to sell your life insurance policy if you’re 65 years old or above. The truth is that the sooner you’re likely to die, the more interested these life settlement companies and brokers are in buying your life insurance policy.
Once you find a life settlement company or broker, you’ll have to provide details about your medical records and your life insurance. Then, when the buyer pays you in exchange for your insurance policy, you’ll stop paying premiums anymore. But it’s the buyer (not your dependents) who will receive the death benefit that comes with the life insurance policy.
Then, you’ll have to get in touch with the new policy owner to confirm that you’re still alive. You can discuss with the life settlement provider or broker how this should be worked out.
Typically, the new policy owner will send you a document that you’re required to sign and return to confirm that you’re still living.
Life Settlement Companies
You can find a lot of life settlement companies that might be interested in buying your life insurance policy.
Here’s a list of the life settlement providers that you should consider:
- Ovid Life Settlements
- Coventry Direct
- Magna Life Settlements
- Life Equity
- Harbor Life Settlements
- Life Policy Solutions
- Windsor Life Settlements
- Berkshire Settlements
- Abacus Life Settlements
- Genesis Life Settlements
Who Qualifies for a Life Settlement?
Perhaps you now have an inkling that life settlement companies are generally interested in buying life insurance policies that are advantageous to them. They typically pick those policies from people who have low life expectancy so that they can collect the life insurance death benefit sooner. Otherwise, they will continue to pay the premiums while the original owner is still alive.
You’re likely to sell your life insurance coverage if you’re 65 years of age or older. You must also be a permanent resident in a country (for this instance, the United States of America) since the life settlement company will have to continually check with you if you’re still alive.
Life settlement companies are also more likely to buy a policy with a death benefit of $100,000 or more. The more valuable your policy, the higher the offer you get. You also have more chances to sell your life insurance coverage if you have a chronic or terminal illness. That’s why you have to provide your medical records when selling your policy.
Can I Sell My Life Insurance Coverage for Cash?
Yes, it’s possible to sell your life insurance coverage. But the amount you’ll receive is lower than the death benefit. Before you offer up your policy for sale, it’s a must to read the terms and conditions if you’re indeed allowed to sell the insurance policy.
Some life insurance providers prohibit owners from selling their life insurance coverage.
Why Do People Sell Their Life Insurance Policies?
One of the reasons why people sell their life insurance policies is expensive premiums. That could be because they just can’t afford to continue paying the costs of the policy anymore. Also, some people decide to sell their life insurance coverage to shoulder immediate financial emergencies, such as payments for medical treatments or bills.
It’s also an excellent choice to sell your life insurance policy if you don’t have any financial dependents anymore. If you’re a divorcee or you have children who are now financially independent, you can sell the policy since you no longer have dependents who rely on the death benefit of the life insurance policy.
How Much Cash Can I Get?
Of course, not all life settlement offers are equal. The amount that you’ll receive when selling your life insurance policy will also depend on the face amount of your policy.
Some life settlement companies may give you 25 to 50 percent of your policy face amount. So, if you’re covered for $100,000, you can sell the policy for $25,000 or $50,000. You also have to pay for fees and income taxes or capital gains if you successfully sell your life insurance coverage.
What Should People Ask Before Selling Their Life Insurance Policy?
Yes, a life settlement can be advantageous on your part. But make sure to ask yourself these following questions before deciding to sell your life insurance policy.
- Do I Still Need Life Insurance Coverage? It’s better to keep the insurance if you can afford to pay the premiums, and you still have financial dependents.
- What are the Alternatives to Pay My Premium? If you think paying for your premiums is a financial burden already, you can take out loans from the policy or reduce the death benefit in exchange for a lower premium.
- Is the Buyer or Broker to Be Trusted? Make sure that your life settlement provider or broker has a license because it’s one of the proofs that you’re going to have an excellent transaction.
FAQ about selling life insurance policies
A life settlement is when you sell your life insurance policy to a third party for cash. The third party is typically another buyer or broker who will continue to pay the insurance premiums; they will get the death benefit when you pass away. Life settlements used to be known as a viatical settlements.
The amount of cash you'll be offered will depend on several factors such as your age (life expectancy), the benefit amount of your life insurance policy, and how much the third party buyer will have to pay in premiums while you're still alive. This is why the older you are the more cash you can expect when you sell your policy.
People who want to sell their life insurance policy typically are over the age of 65. However, people younger than 65 may be able to qualify based on their health status. According to LISA (Life Insurance Settlement Association), people with specific medical conditions may qualify.
Tax-advantaged retirement accounts or lowering your death benefit of your life insurance policy are two alternatives to selling your policy.
Not every life insurance company or policy will allow you to lower your benefit amount. However, if you have a few dependents and you're older, it could keep your policy active and save you money.
With tax-advantaged retirement accounts (think Roth IRA) also provide a high rate of return. You are able to begin withdrawals penalty free about 6 years prior to being eligible to sell your insurance policy. Another benefit is that unlike your life settlement option, when you make withdrawals from your Roth IRA during retirement, you will not pay taxes on the payout.
Life insurance isn't like car insurance, as it isn't required that you own it -- it isn't mandated by law. Selling your policy makes sense in a few situations.
Life settlements are great if you don't have anyone who relies on you financially (dependents). Perhaps you had dependents, like children, who have grown and are now independent financially.
Some other common situations are people who are recently divorced or business parters who are no longer in business together. When there are no dependents who is in need of your death benefit, then a life settlement is something to consider.
The first step when selling your life insurance policy is to find a buyer. The most common situation is to find a life settlement company or broker to sell your policy to.
Do I still need life insurance coverage? Can you afford your insurance premiums and do you have dependents who still rely on your financial support? If you do then you should consider keeping your policy.
Premium payment options? If your life insurance premiums have become too much, there are some options that may be available. First, depending on the type of policy you have, you might be able to take loans from your insurance policy or reduce the death benefit that can lower premiums.
Is the broker or buyer trustworthy? Make sure the broker is licensed in your state's department of insurance. Don’t use buyer or broker who wants to rush you into a decision.
Typically, a Universal life insurance policy is preferred and face amount of $100,000 or more is the most desirable. However, term life insurance and smaller policies can also be used for life settlements says, LISA.
Pros and Cons of Selling Your Life Insurance Policy
There are advantages and potential pitfalls when selling your life insurance coverage. Read on below.
- Access to much-needed cash
- You’ll no longer have to pay premiums
- You’ll get a lump sum payment that’s bigger than your policy’s cash surrender value
- You’ll have to pay transaction fees
- The amount you’ll receive may be taxable
- Your financial dependents won’t receive the death benefit of the policy
Some folks decide to sell their life insurance policies for a lot of reasons. In such a case, it’s crucial to know how life settlement works and whether it’s right for your financial situation. Make sure to know the pros and cons of selling your life insurance coverage before making a decision.
About the Author: Bree Diaz is a writer and an aspiring financial advisor. She writes varying topics about finance like debt and finance management, personal finance, credit repair, etc. She browses sites like SiFinances.com, Investopedia, Forbes and The Balance for her references. When she has some spare time, she travels to different countries with her friends to discover some amazing culture and traditions.