Can I Sell My Life Insurance Policy for Cash? Here's How

You might be thinking, “Can I sell my life insurance policy for cash?” It’s a question many people ask as they reach a point in life where their needs and circumstances change. Maybe you no longer need the coverage, premiums have become a burden, or you simply need an influx of cash for other reasons. Well, you’re in the right place. We’ll cover everything you need to know about life settlements, viatical settlements, and whether this option makes sense for you.

What Is a Life Settlement?

A life insurance settlement is essentially selling your existing life insurance policy to a third party for an immediate cash payout. This is different from surrendering your policy to the insurance company for its cash surrender value. You’ll likely receive a much higher payout in a life settlement.

However, this payout will be less than the policy’s death benefit. The life settlement company becomes the new policy owner and takes on the responsibility of paying premiums. When you pass away, they receive the death benefit. It’s important to understand that you no longer have any claim to the death benefits once you’ve sold your policy.

When Does Selling Your Life Insurance Make Sense?

Many reasons could make selling your life insurance policy an attractive option. Here are some common situations where individuals consider life settlements:

**Premiums become unaffordable:** As we get older, premiums can become difficult to manage, especially on a fixed income.
**Life changes:** Your children might be grown and independent, or you may have paid off debts, making the original need for coverage obsolete.
**Financial needs:** You might require a substantial sum of money for unexpected medical bills, long-term care, or even to supplement retirement savings.
**Term conversion deadline:** If your term life insurance policy is approaching its conversion deadline and converting to a permanent policy is costly, a life settlement might make sense. Consider looking at your CD rates to see if investing some of the money from the sale of your policy could make sense.

What About Viatical Settlements?

A viatical settlement is similar to a life settlement. But, they specifically apply to individuals diagnosed with a chronic or terminal illness and who have a limited life expectancy. This process lets them access a portion of their death benefit while still alive, often to cover medical costs or enjoy their remaining time. The amount received in a viatical settlement typically depends on factors such as the insured’s health, life expectancy, and policy value.

How Much Cash Can I Get?

You’re probably asking, “Ok, but *can I sell my life insurance policy for cash* – and how much will I get?” Honestly, there’s no set figure for how much you can receive. The value of a life settlement hinges on factors like your age, health, policy type, death benefit amount, and the market for life settlements at the time. Refinancing and getting better personal loan interest rates could make more sense in some scenarios.

Generally, older individuals in good health with larger death benefits tend to receive higher offers. For example, according to the Life Insurance Settlement Association (LISA), the average life settlement offer is 20% of the policy’s face value. In 2021, LISA members actually offered 7.8 times more than the cash surrender value for policies they bought. But remember, every case is different.

Is Selling the Right Choice?

There’s no “one size fits all” answer. You should consider both the advantages and disadvantages of selling before deciding if it’s the best option for your unique situation.

Pros of Selling

Of course, you’re looking to get cash for your life insurance policy. This is a big motivator. However, you’ll also no longer need to make premium payments. And as we mentioned earlier, the payout you get is often significantly higher than the policy’s cash surrender value.

Cons of Selling

It’s vital to weigh the downsides. The main disadvantage is that your beneficiaries will no longer receive the death benefit upon your passing. And selling your policy might have tax consequences. To navigate these potential pitfalls, speaking with a financial advisor or tax professional beforehand is best. Paying close attention to your checking account balances is vital when making large financial decisions.

Additionally, you must disclose your health information to the life settlement company during the application and underwriting process. Depending on your state’s regulations, the information could be shared when the company resells your policy.

How Does The Life Settlement Process Work?

Selling your life insurance policy can seem like a complex process. Here’s a breakdown of the typical steps involved:

1. Shop Around

Just like with any financial product, get quotes from multiple life insurance leads or viatical settlement companies. Compare offers to ensure you get the best deal for your policy. This process involves disclosing details about your health, policy type, and death benefit amount to these companies.

2. Application & Underwriting

After choosing a company, you’ll need to fill out an application. You must allow access to medical records, so the company can assess your life expectancy and the policy’s overall value.

3. Receive & Negotiate Offers

The company will then offer a payout. This figure will depend on factors discussed earlier, including life expectancy. Remember, you don’t have to accept the first offer. Feel free to negotiate a price you’re comfortable with. But, it’s helpful to go into this process knowing that the average life settlement pays around 20% of the policy’s face value.

4. Close the Deal

If you accept an offer, you’ll need to sign legal paperwork, and the policy ownership transfers to the purchasing company. After all the documentation is finalized, the settlement company pays you the agreed-upon amount. This point is when you officially sell your life insurance. Getting your finances in order is important and you can use a savings calculator to track your goals.

Alternatives To Selling

If you’re uncertain about selling your life insurance, consider some alternatives before taking this route. Depending on your policy type and circumstances, you might be able to:

**Reduce your death benefit:** Decreasing the death benefit can lower premium payments, making it more manageable for your current situation.
**Surrender the policy:** Surrendering your policy to the insurance company gives you a small cash surrender value. But, keep in mind that this will be much less than a life settlement, so it might not be the ideal option. You may want to speak to a financial advisor before doing so.
**Take a loan against the policy:** With permanent life insurance that builds cash value, you can take a loan against your policy. Although you will have to pay back the loan with interest, this can help tide you over in times of need. It also allows you to keep the coverage in place. Make sure to look at different auto loan rates you may be able to get to consolidate debt.
**Use the accelerated death benefit:** This option applies if you have a terminal illness, letting you access part of the death benefit while still alive. Accelerated death benefits are typically built into permanent life insurance policies.
**Seek guidance from a financial advisor:** They can review your finances, understand your circumstances, and help explore options tailored to your specific needs. Talking to a professional can guide you toward the best decision for your situation. For small businesses, consider different options for savings accounts you could open up.

Conclusion

Deciding “can i sell my life insurance policy for cash” is a significant financial choice. You should weigh various factors before proceeding with a life or viatical settlement. Evaluating alternatives and seeking guidance from financial professionals and tax advisors is wise. They can help make sure this decision aligns with your financial goals and circumstances. Understanding all aspects of life settlements and the implications they might have for you and your beneficiaries is essential. By researching and exploring alternatives, you can make a thoughtful, well-informed choice regarding your life insurance policy.

Can I Sell My Life Insurance Policy for Cash? Here’s How

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