If you purchased life insurance, you did so because you wanted to protect your dependents from financial hardship after you die.
But what if no one depends on you anymore? But what if you can no longer pay your bills? If your insurance lapses, it can feel like your monthly payments have gone to waste.
About 85% of term policies and 88% of universal life policies will expire, cancel, or surrender before the death benefit is paid. Harbor Life Settlements helps people instead of selling them their policies.
In this guide, we’ll cover in detail the benefits and dangers of selling your life insurance, alternatives, and how to stay safe if you decide to sell.
Before we get into how to sell your life insurance, let’s look at why you might want to cash out in the first place.
How much does life insurance cost?
The main reason most people sell is because of the cost.
The amount you pay depends on the following:
- Your age and gender
- Your health history
- Your family’s health history
- Other risk factors (such as hazardous work)
- The type of life insurance you buy
- The amount of coverage you receive
- Your policy term
When you’re young, and in your high-income years, these amounts may not matter much. But that pesky money can become a thorn in your side in retirement, perhaps when medical expenses are higher than expected.
And if those who are no longer dependent on you are no longer dependent on you, then you may wonder: is life insurance still worth it?
But does that mean selling your policy is the best option? Let’s see.
Can you sell your life insurance policy?
The sale of a life insurance policy is called a life settlement or viatic settlement.
There are a few different ways this can work:
- Cash payment: The investor pays you a small amount, takes over your money, and if you die before your policy expires, they will receive your death benefit.
- Death saved his profits: An investor takes over or contributes your money. If you die, a portion of the death benefit will go to your beneficiary and the rest to the investor.
- Hybrid: This combines a cash payment and a retained death benefit.
Investor is making their money worth it because they will die soon. It sounds terrible, but it’s a big deal.
The trick is finding the person willing to fix this mess. Investors will want a good reason to believe they will receive your death benefit. Depending on age, health, and other circumstances, finding a buyer may not be easy.
How to sell life insurance?
As mentioned, the biggest obstacle to a settlement is finding a buyer. You will need to work with a broker or settlement company to maximize your likelihood of success.
A broker will help you hunt down investors who want to buy your policy. Since each broker sets their commission rates and has access to different relationships, it’s best to shop around with several brokers to see who gets you the highest quote.
To be eligible to sell, you generally need to:
- Be 65 or older,
- Become a US citizen
- Have health problems,
- I am obtaining commercial life insurance with a face value of more than $100,000.
The process of settling life works like this:
Step 1: Complete the life settlement application
This includes collecting medical documents and signing various permission forms.
Although a lot of paperwork is involved, your broker or settlement company will guide you through the process.
Potential buyers will want to know your health status. For them, the sicker and older you are, the better. The shorter your life, the more your policy will be worth.
Step 2: Wait for the underwriting.
Armed with all your documents and health reports, the underwriting team will perform an estimate to help investors determine how much to offer for your life settlement.
Step 3: Close the deal
Once you accept the offer, it’s time for more paperwork, contracts, and signatures. After reviewing everything, the investor will send your payment to an escrow account.
All that remains is to hand the signed beneficiary-transfer papers to the buyer. They will provide it to your life insurance company. You will usually receive your payment from escrow (minus closing fees and broker commissions) within three business days.
After you receive your payment, they will no longer profit if you die.
What to ask before selling your life insurance?
Selling your life insurance is a big decision. Here are some key questions to ask yourself to make the right choice.
• Do you have better options?
Maybe your lifestyle isn’t your only choice. Some policies allow you to reduce your death benefit, which in turn will reduce your payouts. After recalculating how much life insurance you need, you may find that you are already covered and don’t even need such a high death benefit.
Other policies may have an accelerated death benefit rider. This may allow you to receive part of your death benefit early in certain circumstances (such as terminal illness).
• What life insurance do you have?
When deciding, it’s essential to understand the difference between term and whole life insurance.
Whole life insurance is generally stricter than term life insurance. You have other options with whole or cash-value life insurance policies. You can borrow against your policy, withdraw the cash value, or cancel your policy for the cash surrender value.
Comparing these options with a life settlement is essential to know the best fit for you.
• Is it worth it?
A life settlement may not be as much as expected: typical lump sums run from 10% to 35% of your death benefit. The exact amount will depend on your life expectancy, coverage amount, premium cost, and current market conditions. If your death benefit was $250,000, you’re looking at a life value of about $25,000 to $87,500.
It would be a shame if you paid out over decades, leaving your beneficiaries with a large inheritance. But pass this policy shortly after selling it for a fraction of the price.
That is, if:
- I need money now.
- You can no longer afford your premium payments.
- You want to enjoy your money while it’s still alive.
- You are no longer addicted. If you die, no one will suffer financially.
• What are the tax consequences?
Remember, Uncle Sam will want a slice of your living. The taxes you pay on your residence depend on the type of life insurance you sell (among many other factors). To avoid surprises, consult a tax professional before proceeding with the sale.
You are selling your life insurance safely.
As with any significant financial transaction, there are several necessary safety precautions to take when selling your life insurance policy:
- Be careful who you work with. Do your due diligence to find a reliable broker. Think: vulnerable seniors share sensitive personal information and transfer large sums of money. Be careful who you trust.
- Calculate all costs. To avoid surprises, you need to understand precisely how much money you will have left and how this income will affect you. Before selling, calculate all taxes, brokerage fees, closing costs, and potential eligibility issues with other programs where you can get help.
- Pay attention to creditors. If you are in debt, settling your life may not be wise. You wouldn’t want your creditors to receive your payment as soon as they receive it. In this case, it is better to let your debts die with you so that your family can receive your death benefit.
With so much at stake, your safest bet is to talk to a financial advisor before making any big decisions. They can create an economic game plan that best suits your needs.