How to Sell Your Life Insurance Policy for Cash
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Life insurance is a great way for you to take care of your loved ones after you pass away. However, there are reasons why a person might want to take advantage of their policy while they’re still alive. One of those options is selling your policy for cash. Experts say that you could end up getting anywhere from 20 to 25 percent of your policy’s benefit in a sale.¹ Search online to find out which institutions are interested in buying your life insurance policy.
Of course, selling your policy isn’t as easy as making a post on eBay. Just start an online search to learn more about the process and how to qualify.
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What Selling Your Life Insurance Policy Means
When you have a life insurance policy, your beneficiaries receive a death benefit after you die. This changes when you decide to sell your policy. Instead of your beneficiaries receiving anything, a third-party that buys your policy receives it instead.
Third-party brokers or settlement companies will give you cash in exchange for your life insurance policy. This transaction is also known as a life settlement. The buyer essentially pays your premiums and receives the death benefit when you die. This means your existing policy is no longer active.
Most people that sell their life insurance policy are 65 years of age or older. The older you are, the more money you could get from a sale. While it might seem strange to sell your policy after investing money into it, The Balance lists there some reasons why it makes sense for some people to do:²
- If your policy doesn’t provide access to the death benefit early and you’re critically or chronically ill.
- You need long-term care.
- You need money for retirement.
- You cannot afford to pay for your life insurance policy anymore.
- You no longer need life insurance.
It might also make sense if there are no dependents that rely on your income. Selling also gives you the option of getting something out of your policy if it’s no longer something you need or if you risk losing the policy altogether due to lack of immediate funds.
Benefits of Selling Your Life Insurance Policy
Whatever the reason may be, there are some crucial things to know before selling your life insurance policy. That’s why it’s important to weigh the pros and cons before going through with this financial decision.
Selling your policy could be a great way to get cash without borrowing it from a bank. As long as you qualify, a third-party can put money in your pocket. It allows you to reap the benefits of your life insurance policy before you pass away.
This can be especially beneficial for people who can no longer afford to pay for your life insurance premiums. Instead of stopping your payments and potentially losing out on your entire death benefit, you can eliminate the premium from your monthly expenses altogether and receive a decent sum of money.
Cons of Selling Your Life Insurance Policy
Selling your policy also has negatives. For starters, it can be difficult to even find a buyer that’s willing to give you cash for your policy unless you meet certain criteria.
Third-party buyers want to ensure they will make money back on their investment. This can make it hard for just anyone to sell their policy. Typically, they are only willing to purchase a policy from people over the age of 65 with a policy worth at least $200,000.³ They might consider someone younger if they are living with a serious medical condition.
Secondly, there are taxes and commission fees that will reduce the value of your sale. The fees can be as high as 30 percent of your payment. The payout being significantly lower than what your death benefit — sometimes just 20 percent of the face value — can almost make the sale not worth it to most policyholders.
Lastly, the payout you receive could qualify as taxable income. This can be an issue for people relying on government programs or subsidies like Medicaid. Make sure to understand whether a life settlement will lead to financial implications when considering a life settlement.
Learn How to Sell Your Life Insurance Online
Before selling your life insurance policy to a third-party, think carefully about the pros and cons. You will be taking away the death benefit from your beneficiaries after you die and could end up receiving only a fraction of what the death benefit is worth.
Find out more about how life settlements work by searching online. There might be other options to consider, such as borrowing from your policy or accelerated death benefits. Online resources and financial advisors can advise you on what the best course of action is.