This article was reviewed by Andrew Flueckiger, a member of the Finder Editorial Review Board and certified insurance counselor and licensed insurance agent in five states.
When should I sell my life insurance policy?
You might consider selling your policy in these situations:
- You’re having trouble affording premium payments.
- You’ve accumulated enough assets and savings to cover any financial obligations after death.
- You no longer need to provide for any financial dependents.
- You’ve paid off your mortgage and other personal debts.
- You want to use the proceeds to help with day-to-day expenses or retirement costs.
How does selling a life insurance policy work?
When you sell your life insurance policy, the new owner takes over paying the premiums. In exchange, they’ll receive the death benefit payout when you die.
You’ll generally want to engage a broker to help you sell your policy, or go with an insurer that buys life insurance policies regularly. While you can sell your policy directly to another individual, it can be difficult to find a buyer and navigate legalities without help.
Once you’ve signed over your policy, you’re no longer responsible for paying any premiums. You may need to check in with the buyer occasionally to let them know you’re still alive.
The steps to selling a life insurance policy
If you’re ready for a life settlement, these are the steps:
- Double-check your state’s laws and insurer’s guidelines. They may impose rules as to when and whether you can sell your policy. For example, you may need to be over 65, or have a policy worth at least $100,000.
- Find a buyer. If you’re looking to bypass brokerage fees, you can either find a buyer or opt for a life settlement provider to connect you with potential buyers.
- Get your policy appraised. Your insurer may do this for free, while a life settlement broker may expect you to use their brokerage services.
- Compare offers. Wait for a competitive offer before selling.
Should I sell my life insurance policy?
Before selling your policy, consider the following:
- Your dependents. Will your family be in any financial danger without the life insurance payout? Can they pay for funeral arrangements without going into debt?
- Your debts. If you’re canceling your insurance policy because you have enough in cash and assets to leave your family, remember to factor in any debts you owe, including your mortgage, car loan and any credit card balances.
- Taxes. You may need to pay a capital gains tax on any profit you make on your life insurance settlement.
- How much you’ll make. Most life insurance policies only sell for 13% to 21% of their value. Consider whether that profit is worth giving up the policy.
What are the alternatives to selling your life insurance?
If a life settlement isn’t in your best interest, consider:
1. Adjusting your current policy
Review your current policy to see if you can save on your premiums by adjusting the:
- Coverage amount. If you want to keep some coverage while still lowering your premiums, talk with your insurer to see if you can lower your coverage amount.
- Optional features. For example, if you have a death benefit with add-ons for critical illness insurance and disability insurance, re-evaluate your coverage needs. If you’re no longer working, you might not need to rely on critical illness insurance to cover any lost wages if you get sick.
- Risks. If you’re healthier now than you were when you took out the policy, talk to your insurer to see if you can negotiate a new rate. For example, if you quit smoking, lost weight or started exercising regularly, you may be able to negotiate for a lower premium.
2. Surrendering your permanent policy
If your life insurance policy has a cash value, you may be better off surrendering it to your insurance company and taking the profit — minus any fees. Talk to your insurer to find out how much you can get for cashing in your policy and compare it with the sale value.
3. Cancel your existing policy and find a cheaper alternative
If you want to cancel your existing policy and look for a better deal, it’s a good idea to wait to cancel until your new policy is active so that you don’t have a gap in coverage.
While you can get a policy without getting a medical exam, they tend to be more expensive. If you’re healthier now than you were when you took out your current policy, you may be able to save more by submitting a medical exam along with your application.
Consider using an insurance adviser to help you find a policy in your budget and explain any complex features and benefits.
Compare other life insurance policies
Selling your life insurance policy can make a profit, but you’ll generally get much less than the policy is worth. If you decide it’s the right option for you, use a broker to help you get the best deal. And if you’re on the fence, consider switching to a new life insurance policy instead.
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