- You may be able to sell an active term life insurance policy if you no longer need it or want to raise immediate cash.
- If you sell your term life insurance policy, you’ll no longer pay the premiums. In return, the buyer will receive your death benefit when you die.
- Convertible term life insurance policies are more valuable and easier to sell than those without a conversion rider.
Can You Sell a Term Life Insurance Policy?
You may be able to sell your term life insurance policy to a third party during the policy’s term or when coverage is active. Some states require you to hold your policy for a few years before you can sell it.
Selling your policy may have lasting consequences for your family and your future finances. Weigh your decision before you commit to it.
Even though it has no cash value, a term life insurance policy can be sold by the policyowner to a life settlement company for a lump sum payment. If you are past retirement age and no longer need your term life insurance policy, look into the option of selling it.
Why Should You Sell a Term Life Insurance Policy?
Possible Reasons To Sell
- You no longer need the policy. Selling your life insurance policy will net you more money than surrendering it to the company or letting it lapse.
- You can’t afford the premiums. If you sell your policy, the buyer will pay the rest of the premiums.
- The policy is nearing expiration. If your policy’s term is about to end, you’re not likely to get any use out of it. Selling it allows you to recoup part of your investment.
- You need immediate cash. You can use proceeds from the policy sale for anything you want, such as paying off debts or making a big purchase.
How To Sell Your Term Life Insurance Policy
Selling your term life insurance policy is a multistep process that begins with a thorough examination of your policy details and your health. An important factor is if you have a conversion rider. If you do and it makes financial sense to sell, understanding the process helps as there are two ways to proceed.
You can either find a broker on your own or go through an online provider marketplace. When contemplating either option, it is crucial to select someone who is reputable and will offer a fair price, and then complete the application truthfully and accurately. It will be considered for offers once your application is completed. If you accept an offer, you’ll sign over ownership to receive payment.
Read More: Life Settlement FAQs
Is Your Policy Convertible?
Before approaching a life insurance settlement company to sell your policy, make sure your policy is convertible. A convertible term policy is one that can be extended to provide coverage for your entire lifetime, as opposed to a fixed number of years. Converting the policy before selling may be a sensible decision since a permanent life insurance policy could yield a higher payout.
To verify the convertibility of your policy, examine your contract and policy documentation for any references to a conversion rider. It’s important to note that not all term insurance policies include this rider, and some may impose limitations on its availability. If the rider is present and active, it indicates that your policy is convertible.
If you convert your policy, you’ll be eligible for life insurance coverage during the rest of your lifetime. You’ll also accumulate cash value on the policy. If you decide not to sell your policy, you’ll keep this value as an asset.
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Prepping for a Term Life Insurance Settlement
Thorough preparation and analysis is key to making the life insurance settlement process go smoothly. Follow the steps below to complete the transaction.
How To Prepare for Your Term Life Insurance Settlement
- Determine your eligibility. Have you held your policy long enough to qualify for a life settlement in your state? If you’re not sure, ask a professional life settlement broker for help.
- Review your policy. Check the monetary value of your policy and what its current terms are. If it’s convertible, consider converting it to a whole life policy before proceeding.
- Evaluate your financial needs. Do you need money right away? If so, how much? Is there any other way you could get the funds you need?
- Get an appraisal. Ask a life settlement broker to estimate the value of your policy on the open market. This will help you decide if the offers you receive later are fair.
- Consult with professionals. You’ll want to choose a life settlement company. Most of the time, you’ll use the company that employs your life settlement broker.
- Compare offers. Your life settlement company will approach multiple buyers on your behalf and produce a list of any offers and terms. Choose the one that best meets your needs. Your broker can help.
- Finalize the settlement. Once you’ve accepted an offer, you’ll sign a settlement contract to transfer ownership of your policy to the buyer. Then you’ll receive proceeds from the sale.
Pros and Cons of Selling Your Term Life Insurance Policy
There are pros and cons to selling your term life insurance policy. On one hand, you won’t have to pay premiums anymore and you’ll get money in exchange. On the other hand, you’ll surrender the long-term financial benefits of your policy.
What Are the Pros and Cons of Selling Your Term Life Insurance Policy?
- You’ll receive immediate cash you can use to pay off debts or invest
- You’ll get more money for your policy than you would if you let it lapse or surrendered it
- You can get rid of a policy you don’t need. You won’t have to pay your premiums anymore
- Your family won’t receive your death benefit
- You may not be able to take out another life insurance policy in the future
- You may owe taxes on your life settlement proceeds
- Policies that are not convertible may be slow to sell or require significant discounts
Source: R.W. Finnegan