Selling a Term Life Insurance Policy
By: Life Insurance Hotline
Fall 2019 (Vol. 37, No. 3)
Q: Can I sell my term life policy for quick cash?
A: The general answer is yes. Selling your term life policy is called a “Life Settlement”. However, there are a few ifs and buts to contend with and it can take several months to settle. Here are some key points to know about Life Settlements:
Life settlements involve working with companies other than the original provider. Don’t go with the first one you see. It’s best to shop around through a reputable life-settlement broker or contact life-settlement providers directly. Do your homework, look for independent online reviews, check with your state’s department of insurance to make sure the company is properly licensed and review complaint history.
All types of insurance policies can be sold. Whole Life and Universal are preferred but even a term policy may qualify.
You don’t get the full maturity value, typical payouts can range from 10% to 50% of your policy’s face value depending of factors such as your current age, life expectancy, premiums and other policy details.
Eligible policies typically need to have a face value of $100,000 or more.
A person over age 65 will usually qualify for a settlement, but any age may qualify if there have been significant changes in your health since you purchased the policy.
The settlement provider will need copies of your insurance policy and medical records. They will base their purchase offer on your age and health, the type of insurance, the premiums, and the death benefit.
A term life policy will need to be converted to a permanent policy. Check your policy for a “conversion rider”. Most policies can be switched over until age 70 but some will allow that option until age 75.
When the life-settlement provider buys your policy, they own it and take over payment of the premiums. They buy you out now for a reduced sum but will eventually receive the full death benefit when you die.
Keep in mind that there can be a downside to cashing out your policy. If you are over 65 or have serious health problems, it may be near impossible to purchase another policy. The sale may also create tax consequences and could affect your ability to qualify for public assistance like Medicaid. It is recommended you consult your financial adviser and tax professional before making a final decision.
Q: Can my current insurance provider give me quick cash in an emergency?
A: That’s possible. Before you explore selling your policy, contact your current provider. If you have a cash-value policy, you may be able to borrow money from it. You can usually take the loan without surrendering or altering the terms of the policy and without triggering any tax consequences.
If you have been diagnosed with a shortened life expectancy or if you are terminally ill and your policy includes an “accelerated death benefit” you may be able to take part of your death benefit early (also tax-free!)
Also, ask if you have a long-term care rider. If you cannot perform two of the six activities of daily living or if you suffer from a severe cognitive impairment you may be eligible for help with the expenses associated with your care.
Q: I just signed a contract to sell my policy and now I think I made a mistake. Is it too late to change my mind?
A: That depends on the terms of the contract and the laws in your state. Many states have adopted model standards from the National Association of Insurance Commissioners or the National Conference of Insurance Legislators. Policy owners sometimes have the option of returning their life settlement and reinstating their life insurance policy within 30 to 60 days.