Thinking About Selling Your Life Insurance Policy?
Before you surrender, cancel, or let a life insurance policy lapse, it may be worth finding out what you actually own and what options are available. A life settlement allows some policyowners to sell an existing policy for cash—but many policies won't receive an offer.
We start by understanding the policy and why you're considering a change. Then we can help you determine whether keeping it, changing it, surrendering it, or exploring a life settlement makes sense.
Sometimes You Just Don't Need the Policy Anymore
You may have bought life insurance years ago to protect your family, cover a mortgage, fund a business need or leave money behind for someone you care about. But life has a way of changing.
Maybe your children are grown, you're in or approaching retirement, the original need for the coverage is gone, the premiums have become harder to justify, or a term policy is nearing the end of its level period. Sometimes you simply reach a point where you're asking, “Do I still need this policy?”
If you're leaning toward no, that doesn't necessarily mean the next step is to cancel it. Before giving up the coverage, it's worth a conversation to understand what you own and whether the policy has other options—including, in some situations, the possibility of selling it.
Reasons People Start Reconsidering a Policy
The children are grown
The mortgage or other obligations are gone
The premiums are getting harder to justify
A term policy is nearing the end of its level period
That doesn't automatically mean cancel the policy.
Not Every Life Insurance Policy Can Be Sold
A life settlement isn't available for every policy. In fact, many policies we review never receive an offer because the insured is too young, too healthy, or the policy simply doesn't make financial sense for a buyer.
A policy with little or no cash value may still be worth exploring, while another policy with substantial cash value may not attract a settlement offer.
The question isn't just “How much is my policy worth?” It's whether your age, health and the economics of the policy come together in a way that makes someone willing to buy it.
What Usually Matters
│Age & Health
Generally, advancing age or significant changes in health can make a policy more attractive to settlement buyers.
│Type of Policy
Some permanent policies are commonly considered, while certain term policies may also work if they have the right conversion options.
│Death Benefit
The amount of coverage matters, but a larger policy doesn't automatically mean a larger—or any—offer.
│Cost to Keep It
The premiums required to keep the policy in force can have a major effect on whether the numbers work for a buyer.
The Right Choice Depends on What You're Trying to Accomplish
A life settlement can make a lot of sense in the right situation. But before deciding, it helps to understand what you're trying to accomplish and what other options the policy may give you.
Depending on the policy, those options might include keeping the coverage, making changes to it, using existing policy values, converting term coverage, reducing the death benefit, surrendering the policy, or selling it. That's why we start with a simple question: “Why are you thinking about making a change?”
Once we understand that, we can look at the options that actually apply to your policy, compare the tradeoffs, and help you decide what makes sense.
He Was Ready to Let His Term Policy Go
A client in his mid-70s had a term life insurance policy that was reaching the end of its level-premium period. His need for the coverage had changed, and continuing the policy at the increasing renewal premiums didn't make much sense to him.
Instead of simply letting the policy go, we looked at the options available under the contract. One of those options was converting the term coverage to permanent insurance without going through new medical underwriting.
That conversion also opened another possibility: a life settlement.
We compared the choices, explored the settlement market, and ultimately he decided to convert the coverage and sell the policy. The settlement paid him $11,377 for a policy he otherwise planned to walk away from.
The Important Part Wasn't the $11,377
It was finding an option the client didn't know he had before he gave up the policy.
That's exactly why I believe an existing life insurance policy should be understood before it's canceled, surrendered or allowed to lapse.
Start by Finding Out Whether Your Policy Is Worth Exploring
We start with some basic information about you and your policy. From there, we can usually get a good idea whether a life settlement is worth pursuing before asking you to spend time gathering medical records or completing paperwork. If it looks promising, we'll help gather the information needed to have the policy evaluated and see what offers may be available.
Then we come back to the question that matters most: Does selling the policy actually make sense for you?
We'll explain what we found, compare it with the other options available to you, and let you decide how you'd like to move forward.
Questions About Selling a Life Insurance Policy
Can I sell my term life insurance policy?
Sometimes. Certain term life insurance policies can be sold, but the policy usually needs to have the right conversion options and the overall case still has to make financial sense to a buyer.
A term policy normally has no cash value, but that doesn't necessarily mean it has no potential settlement value. As in the client story above, conversion rights can sometimes make a settlement possible even when the owner was otherwise planning to let the term policy go.
We can review the policy and its conversion options before you give up the coverage.
How much could my life insurance policy be worth?
There isn't a simple percentage or formula that tells us what your policy is worth in a life settlement.
Your age and health, the death benefit, type of policy, and especially the premiums required to keep it in force can all affect whether buyers are interested and what they may be willing to offer.
The best way to know is to evaluate the actual policy rather than rely on a generic online calculator.
How old do I need to be to sell my life insurance policy?
There isn't one age that automatically qualifies—or disqualifies—you for a life settlement.
Age matters, but so does health. Generally, older insureds and people with significant health changes are more likely to have policies that price. Someone who is younger and very healthy may have a policy that simply doesn't make financial sense for a buyer.
We can usually determine fairly quickly whether your age, health and policy make a settlement worth exploring.
What's the difference between surrendering my policy and selling it?
Surrendering a policy means giving it back to the insurance company. A life settlement means selling it to a third party.
With a permanent policy, surrendering may provide you with its available cash surrender value. In a life settlement, a buyer purchases the policy, takes responsibility for future premiums, and ultimately receives the death benefit.
Before surrendering a policy, it's worth finding out whether selling it—or another option available within the policy—could make more sense.
Do I have to sell my policy if I receive an offer?
No. Receiving an offer doesn't mean you have to accept it.
An actual offer simply gives you another option to evaluate. You can compare it with keeping the coverage, surrendering it, or other choices available under your policy.
We'll help you understand the differences. You decide what makes sense for you.
Will I owe taxes if I sell my life insurance policy?
Possibly. The tax treatment of a life settlement depends on your policy and individual circumstances.
Life settlement proceeds should not automatically be assumed to be tax-free. There are also different federal tax rules for certain qualifying viatical settlements involving terminally or chronically ill individuals.
We can help you gather the information about the transaction, but you should discuss your individual tax consequences with your tax professional.
What happens to my life insurance policy after I sell it?
The buyer becomes the policyowner, pays the future premiums and generally receives the death benefit when you die.
After the sale, you should also expect periodic contact to confirm your current status and any changes in your health. Depending on the circumstances, authorization to obtain updated medical information may also continue after the settlement.
That's part of what you should understand before selling—not just the amount of the offer.
Kevin Woolley
Founder | Woolley & Woolley Insurance Group
Before You Give Up Your Policy, Let's See What You Actually Have
If you're thinking about canceling, surrendering or selling a life insurance policy, let's start with a conversation. We'll look at what you own, why you're considering a change, and which options are worth exploring.
I'll explain what I find. You decide what makes sense for you.