Selling a Life Insurance Policy: Everything You Need to Know

A life insurance policy serves an important purpose. When you purchased your policy, you were looking for a safety net. You wanted your family to be taken care of in the event of your death. You wanted end-of-life costs to be covered, lost income to be replaced, and financial concerns to be settled as quickly and easily as possible. But as the years have gone by, those once-serious concerns have likely started to look a bit less important. After retirement, there’s not much to worry about in terms of lost wages. With your children grown up and out of the house, there are fewer people — if any — relying on the money that your life insurance payout would represent. Meanwhile, you may have more reasons than ever to want cash on hand — reasons like high healthcare costs. This is why you should consider selling your life insurance policy.

It’s a question that any reasonable person should ask at a certain stage in their life: Should I be selling my life insurance policy for cash? Before you make your decision, read on and learn everything that you need to know about selling a life insurance policy.

Who buys life insurance policies, and why?

For every seller, there needs to be a buyer. So who is buying life insurance policies?

For buyers, life insurance policies are an investment. Buyers swap cash now for (more) cash later, hoping that inflation, interest rates, and other variables cooperate to help them make some money. Among the most common buyers of life insurance policies are life insurance providers themselves. Buying back policies (or buying policies from other providers) gives these companies a surefire investment (unless you’ve found the fountain of youth, your policy will payout eventually) in a business where uncertainty and risk is the whole point.

These motivations pair well with those of individuals who are hoping to sell their policies. To a seller, cash is worth more than a policy (after all, you won’t be around to enjoy the payout of your life insurance, anyway).

Why should I sell my policy?

There are a lot of reasons to sell a life insurance policy, but among the most common reason is the expense of medical care. Healthcare isn’t cheap, explain the experts. High-quality prescription drugs aren’t easy to make, say pros who specialize in pharmaceutical services, but they can be life-saving. As such, simply avoiding these expenses may not be an option. Given the high cost of care, it is all too easy for the sick and elderly to fall behind on the bills. Converting an asset like a life insurance policy into cash that can be used to pay down those expenses can be a smart financial move.

Of course, you don’t necessarily need a pressing financial reason to sell your policy. If your eventual death won’t be a financial crisis for your loved ones, then there may no longer be a reason to carry life insurance — meaning that you might as well sell it and enjoy the money while you can.

What types of agreements are there?

There are two basic ways to sell your own life insurance policy to another party. The most basic is called a “life settlement.” A life settlement is a pretty straightforward process: As the seller, you’ll receive a cash payment in exchange for your policy. The buyer will take over your premiums and will get the payout when you pass away. Other than some occasional minor chores (the buyer may check in with you from time to time to see how you’re doing), that’s about it.

The other type of sale is a viatical settlement. Viatical settlements are structured more or less like life settlements, but they have tax advantages and other perks. The reason for this is that viatical settlements are only available to those who are terminally or chronically ill and whose life expectancies are less than 24 months (two years).

How can I sell my life insurance policy?

To sell a life insurance policy, you’ll need a buyer. Your best bet for finding one is to work with a broker or life settlement company that specializes in pairing individuals looking to sell their life insurance with organizations looking to buy policies.

A good broker will help you understand what sorts of agreements you’re eligible for (be it viatical settlements or life settlements) and why. They’ll help you find the best possible offer and will facilitate the sale. After that, you’ll be free to walk away with the cash that you need for medical bills, personal expenses, and a better life for all of the time that you have left to enjoy it!

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