Should You Sell Your Life Insurance Policy?
Are you struggling financially and looking for extra cash? Perhaps your family’s situation has changed and you no longer need a life insurance policy? Everyone has different reasons for choosing to sell life insurance policy, otherwise known as a life settlement. Regardless of your reasons, make sure you know all your options before making your final decision.
Requirements for a Life Settlement
First, you need to ascertain whether you can actually sell life insurance policy. It’s important to note that, for example, you can’t sell a term life insurance policy and you can only sell a permanent life insurance policy. Having said that, more term life insurance policies can be converted into a whole or universal life insurance policy. You can easily discuss the details of the terms with your life insurance company. After that, there are still several criteria to meet before you qualify for a life settlement, as follows:
- Age
- Health status
- Length of life insurance policy
Age
The simple rule for selling your life insurance is that you need to be over 70. Nevertheless, you can sell your insurance policy if you’re younger and this is known as a viatical life settlement. The condition for this is if you are now facing a terminal illness that is therefore impacting your life expectancy. Basically, a life settlement company buys your death benefit and they want it sooner rather than later.
Health status
Again, your current health status has an impact on your life expectancy. Therefore, it’s a big consideration for life settlement companies and how much they’re willing to receive your death benefit payout when you sell your life insurance policy for cash.
Length of life insurance policy
This one impacts the value of your policy. A good rule of thumb is that it should be worth at least $50,000 to be considered by a life settlement company. Of course, each company will make its judgment but that’s a good starting point when selling life insurance.
Options before you Sell Life Insurance Policy
Clearly, the biggest downside of doing a life settlement is that you no longer get a death benefit. Regardless, you might decide that your family doesn’t need it anymore for various reasons. Either way, if you have permanent life insurance, there are other ways to access your policy’s cash even before doing a life settlement, as listed below:
- Withdraw cash value
- Take out a loan on your cash value
- Amend your policy details
- Leverage your dividends
Withdraw cash value
Permanent life insurance can be structured in 2 main ways as either a whole or universal life insurance. Either way, your premium payments contribute to the insurance company’s fees but also to build up what’s known as a cash value. It’s almost like having your special piggy bank so, yes, you can withdraw cash. There will be certain criteria for doing that and each insurer will be different but you still have access to a tax-free lump sum. Of course, taking it out will impact your overall death benefit but it’s worth understanding the calculations with your life insurance company before considering life settlements.
Take out a loan on your cash value
A slightly different approach again is to simply take out a loan. You’ll find that the terms are usually pretty flexible too. Moreover, with a universal life insurance policy, you can even pay the loan back as often or little as you want. Again, how you pay back your loan impacts the overall death benefit but it might be a welcome break from any financial issues you’re facing.
Amend your policy details
One of the first steps can be to simply sit down with your life insurance company. Perhaps you can agree to reduce the premium payments for a slightly smaller death benefit payout? Whatever it is, the more information you can have on the numbers and how your overall finances will be impacted, the easier it will be to make a decision.
Leverage your dividends
Most permanent life insurance policies actually give out dividends because the insurer can invest your cash. It’s a bit like having a mutual fund. How you access these dividends and how they impact your overall policy value again depends on your insurer. Either way, people often get a pleasant surprise when they get the numbers before they sell their life insurance. It can be very insightful to see how the dividends can help alleviate any premium payments.
Choosing to Sell Life Insurance Policy
The biggest reason people choose to do a life settlement is if they no longer need a death benefit. If that’s your case then your 2 main approaches to sell life insurance policy are as follows:
- Life settlement companies
- Broker your Life settlement
Life settlement companies
It’s actually relatively easy to deal directly with life settlement companies. Furthermore, you can do a quick Google search to see the top ones currently active in your area. A wise approach though is to get a few different quotes to compare. That’s because each life settlement company will be willing to pay different amounts to buy your death benefit.
Broker your Life settlement
As you can imagine, you can also go through a broker. Whilst you’ll have to pay them commission rates, you also often get peace of mind because they can usually find you better deals thanks to their network. They’ll also help you throughout the life settlement process and answer any concerns. Then again, you can also talk to a financial adviser to make sure you’re getting a complete set of unbiased information.
Concluding Thoughts for Whether to Sell Life Insurance Policy
If you’re facing the question “do I sell my life insurance” then unfortunately there’s no easy answer although it is a perfectly viable and strategic choice for many people. In fact, deciding to do a life settlement is a very personal decision and is different for every case. You need to weigh up the pros and cons and see what works for your lifestyle as well as for your family. Essentially, get as much information as you can about your policy’s value and the financial impact of each of your options. Then, you can make an informed and data-driven decision.