Make a profit selling your policy — by letting someone else profit from your death.
If you don’t want your life insurance policy any more, you can sell it to a third party. They’ll get the payout when you die, and you’ll make a profit now — but it’ll be much less than the policy is worth.
Why do people sell their life insurance policies?
People most often sell a life insurance policy when they:
- Are having trouble affording premium payments.
- Have accumulated enough assets and savings to cover any financial obligations after death.
- No longer need to provide for any financial dependents.
- Paid off their mortgage and other personal debts.
- Want to use the profit 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 use either a broker, who can help you sell your policy, or a provider 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.
What to consider when selling a life insurance policy
Before selling your policy, consider:
- 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. Is that profit worth giving up the policy?
What are the alternatives to selling your life insurance cover?
If your life insurance policy 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 life insurance 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 surrendering 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 alternative 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.