A life settlement, also known as selling of your life insurance policy, is an approach where you sell the policy to a third party for cash; on purchasing the same, the latter tends to continue paying your premiums. Also, the third party will be benefitted from such a policy after your death.
There are numerous kinds of policies available and usually, the following types of policies can get you a life settlement.
- Whole life policy: This is a permanent life insurance that provides life coverage until your death; such policies stay in force on the continued payment of the premiums. On your death, the assured sum is paid to the nominee, which was decided at the time of the policy purchase. It’s important to note that this policy is for a maximum of 100 years; if you outlive such years, your matured endowment coverage money will be paid.
- Convertible term life policy: This policy allows you to change the policy to a permanent life insurance policy during a specified period of time. It’s important to note that in this type of policy, there is no requirement to show the good health of the insured.
- Universal life insurance: This policy is comparatively more flexible than a whole life insurance policy; you can adjust the premiums as well as death benefits. This policy consists of two components: the amount of the cost of insurance as well as the saving component.
It’s important to note that standard term policies, as well as premium financed policies, do not qualify for such life settlements. To sell your life insurance, another important factor which affects the same is the age of your policy; the expected tenure varies from one state to another. However, it’s mostly not considered in cases like divorce, the death of a spouse, etc.
Another factor that influences your sale of an insurance policy is the value of the policy; usually, companies or professions design constant structures to deal with these policies accordingly. These structures capture comparatively bigger policies and expect your policy to be $100,000 to qualify for the life settlement; an amount lesser than the said amount would tend to exclude your policy. It’s important to note that due to the expansion of the life settlement industry, the minimum death benefit of a policy is gradually coming down.
The final most important factor is your age; you will be eligible only on attaining 65 years of age and the value of the settlement tentatively increases as you age. The main reason for the existence of the age factor is because the buyer gets benefitted only on the passing away of the seller; this means that the older the seller, the lesser the life expectancy and therefore, the benefit can be obtained faster. In addition to the age factor, many ask for medical records- this helps the seller in estimating the approximate life expectancy value more accurately. Of the many top reasons, usually, buyers seek for low life expectancy value sellers because it tentatively decreases the amount of money to be spent on paying the premiums to avail death benefits.
On compiling the above-mentioned requirements, one can answer the question, “Can you sell a term life insurance policy?” You can proceed in the following manner to successfully sell your policy.
- Check and make sure that you do not have large debts; if you have, then consult your financial adviser before selling the policy.
- Find an investor or entity interested in buying life insurance in general.
- Make sure your deal and price are on par with your state rules.
- After finding one, quote your price.
- On striking a deal, you will get the cash, and the buyer will be entitled to the insurance.
Before you can successfully strike a deal with a buyer, make sure to consider the following too.
- You would not get the full face value; usually, the value is between 13% to 21% of the value of your policy.
- If you’re dealing with a broker, you will usually be charged 9%.
- It’s important to note that most buyers prefer sellers with a low life expectancy; if you do not come under this category, your chances might go down.
- Your settlement is subject to income tax.
Your term life insurance can be sold depending on various factors like your life expectancy, state rules, and the type of policy. However, it’s important that the value of your policy is high so that you get a good return, though you may obtain the maximum of 21%. It’s advisable to consult your financial advisor to know more.