Can You Sell Your Term Life Insurance Policy? Eligibility, Pros, Cons and Possible Alternatives

One of the popular questions among policyholders at one point is, “whether can I sell my term life insurance policy for cash in return?”; through this article, we will help you analyze the same.

A few of the main reasons why people sell their policy include the following: the need of cash to cover unexpected expenses, the policy is approaching the expiration date, protection against income loss, and other such related reasons. Basically, there are two types of settlements; viatical settlement and life settlement. A viatical settlement is where you sell your life insurance on account of your ill-health and a result of having a low life expectancy; usually, the life expectancy will be a maximum of 2 years.

Whereas in case of a life settlement, you sell your life insurance for various other reasons like immediate cash. It’s important to note that in order to avail any type of settlement, you should hold any of the policy types like universal term policy, whole term life policy or convertible term policy; such policies should have a face value between $50,000 and $100,000.

The following are the various pros and cons of getting a life settlement:

Pros:

  1.   The amount you get in hand will tentatively be higher than the value you get on surrendering the policy to the company.
  2.   The medical, as well as other long-term care costs, will be covered.
  3.   You can utilize the money during your retirement period.

Cons:

  1.   Since on your death, the buyer will be benefitted, your beneficiaries will not receive money on the event of your death.
  2.   You may not be eligible for medical aids.
  3.   The proceeds of a life settlement are taxed which may add a further financial requirement for you.
  4.   For some deals, you may not get the expected cash; this may be due to factors like your high life expectancy, high cash value, and other such related factors.
  5.   Benefits might be claimed by creditors on account of your existing debts, owing to substantial medical bills, etc.

FINDING YOUR BUYERS:

Usually, compared to individuals, many large institutional companies, known as life settlement providers, purchase term life insurance policies; such institutions purchase in vast numbers and are regulated by the state. Ideally, you can look up such institutions for an effective as well as authentic dealing; they have fixed requirements which will help make your transaction more channelized.

QUALIFICATIONS OR ELIGIBILITY FOR A LIFE SETTLEMENT OR VIATICAL SETTLEMENT:

  1. Your life insurance policy or a duplicate of the same must be available for review; the latter can be obtained through a life insurance carrier.
  2. Your policy must be transferrable and must have a considerable face value like $100,000.
  3. If your policy is non-convertible, the same can be converted and subsequently sold on various factors like your life expectancy, remaining premium schedule, etc.
  4. If your policy comes under joint survivorship, the policy will be valued on the basis of the healthier person’s life expectancy.
  5. Your life expectancy should be a maximum of 15 years; based on your age and health condition, you will be tested accordingly to know your life expectancy.

Generally, the following will be the parameters to know your qualification:

  • If your age is between 65 and 75, your serious ailments will be taken into consideration
  • If you’re between 76 and 80, your chronic health conditions will be considered.
  • If you’re more than 80 years of age, the consideration will be based on the future premium costs of your policy.

ALTERNATIVES FOR LIFE SETTLEMENTS:

  1.   Lapsing of premium payments: If you would like to stop the usage of life insurance, you can tentatively not pay the premiums; however, this means that you will not get the benefit and the insurance company keeps the premiums paid in the past.
  2.   Surrendering of the policy: You can surrender your policy to the insurance company for cash; this is applicable to universal life insurance as well as whole life insurance.
  3.   Withdrawal of cash: If you’re in a requirement of cash, you can withdraw from your life insurance up to the fixed allowed amount. You can contact your insurance company to know how much you can withdraw based on the cash built up in your account.
  4.   Loans against your life insurance policy: Technically, since insurance policies are considered as collaterals, you can apply for short-term loans; it’s important to note that there is no qualification process for such loans.

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About the Author: Jacob Wyatt