All Your Term Life Insurance Questions, Answered

Rebecca Parson
Rebecca Parson

Rebecca Parson

Author

Rebecca Parson is a financial and tech writer with 10 years of experience writing about topics such as life insurance, commodities investing, and the SaaS industry. She has a master’s degree from Johns Hopkins University and a bachelor’s degree from the University of Mary Washington. Her writing has appeared at money.com, sacbee.com, cart.com, herodevs.com, blanchardgold.com, and more.

Brian OConnel
Brian OConnel

Brian O'Connel

Contributor

Brian O’Connell has been a contributing writer for U.S News & World Report since 2016. A former Wall Street bond trader and the author of two best-selling books; “The 401k Millionaire” and “CNBC’s Creating Wealth”, he has 20 years experience covering business news and trends, particularly in the business and financial sectors. He believes education is the best gift a financial consumer can receive – and brings that philosophy to every story he writes. His byline has appeared in dozens of top-tier national business publications, including CBS News, Bloomberg, Time, MSN Money, The Wall Street Journal, CNBC, TheStreet.com, Yahoo Finance, CBS Marketwatch, and many more.

By Rebecca Parson, Brian O'Connel
Author, Contributor, Life Insurance

Understanding your term life insurance policy can be confusing. There are lots of nuances in the industry, and when your financial future is on the line, it’s important to do your due diligence to feel comfortable that you’re making the best financial decision for your particular situation.

We’ve made that easy for you below. We’ve compiled all the most common questions we receive about selling term life insurance, getting benefits from an existing term life insurance policy, and more. 

How To Use This Guide

If you’re looking for a specific answer, you can skim the questions and jump straight to the section that addresses your issue. If you just want to better understand how selling term life insurance works, reading all the answers will give you a great overview. 

As always, these answers take into account the most common situations. We’ll include common exceptions and disclaimers as they apply, but make sure to consult a financial professional for any questions about your unique situation. The more out-of-the-ordinary your policy is, the more likely you’ll want to double-check that these standard answers apply. 

Term Life Insurance FAQs

Can I sell my term life insurance policy?

In general, there are three criteria to meet to be able to sell your term life insurance policy. If the face value of the policy is greater than $100,000, you are over 65 years old, and your policy is convertible, there is likely a buyer for it. This is true even if you are healthy. 

However, if your health is very poor, the situation is tilted in favor of the policyholder. You may still be able to sell your policy, but it will depend on the specifics of your health. Reach out to discuss your situation

Can I borrow against term life insurance?

No. In general, borrowing against a life insurance policy allows you to take out a loan against the cash value that you own in the policy.

Unlike universal life insurance or whole life insurance, a term policy does not have a cash value, so there is nothing to borrow against.

Can I get money back from premiums paid for a term life insurance policy?

In most cases, the answer is no. Some policies include a return of premium rider that allows you to surrender the policy in return for the premiums paid. For policies with this rider, surrender may be allowed either at the end of the term or at specific intervals delineated in the policy.

In some circumstances, you may be able to sell your term life insurance policy for cash. This option typically applies to seniors with convertible policies or individuals who are in very poor health. 

My policy lapsed. Is there anything I can do?

If you fail to pay the premiums on a policy and there is not enough value in the policy to cover the premium payment, the policy will go into a state called “grace” (also referred to as “lapse pending”). This period typically lasts 30 days, during which time you have the contractual right to pay the premiums and bring the policy back into good standing. 

If you don’t pay the required premiums during this time period, your policy will lapse. A lapsed policy may still be reinstated, but it will be up to the insurance company to determine whether or not to reinstate your policy. Unlike the contractual right to take a policy out of grace, you do not have the contractual right to reinstate a policy once it has lapsed.

Many insurance companies will allow you to reinstate a policy (without requiring new medical underwriting) for a period of up to 60 days (depending on the company and the size of the policy). For companies that take this approach, you can think of this window as a second grace period—your last chance to reinstate the original policy. 

If your policy lapses, and you think you may be a candidate for a life settlement, call your insurance company right away and find out if they will allow you to reinstate the policy. If they will allow you to reinstate the policy and you want to explore the possibility of selling the policy (instead of it going to waste), please reach out to us as soon as possible. We may be able to help, but time is of the essence!

If a policy is in “grace,” can it be sold?

As we explained in the previous question, a policy enters the “grace” state if you miss a premium payment on your policy and there is not enough value in the policy to cover it. Although this issue applies to all policies, it comes up most often with term life policies. 

In general, a policy that is in a grace (or lapse pending) state cannot be sold until the premium required to take it out of grace is paid. If you think your policy may be a candidate for a life settlement and it is in the grace period, you should pay the required premium as soon as possible.

If you can’t or don’t want to pay the required premium, please submit your policy to us as soon as possible, as we may be able to work things out. If your policy is in grace and you think it can be sold, it’s important that you act immediately!

Can I get a portion of the death benefit on my term life insurance policy now?

Many policies have an accelerated death benefit rider, which allows the policyholder to access a portion of the death benefit tax free while they are still alive. This benefit is typically only available to individuals who are terminally ill. “Terminally ill” is typically defined as having a life expectancy of less than 24 months. It is important to note that even if a policy does not explicitly have an advanced death benefit rider, many insurance companies will still advance a portion of the death benefit in cases of terminal illness. It pays to ask either way! 

Before approving an advanced death benefit, insurance companies will want to verify that the insured individual meets the criteria for terminal illness. They will request medical records and have them reviewed to make sure the request meets their specifications. 

When the accelerated death benefit kicks in, the insurance company will typically deduct a small portion of the accelerated death benefit to cover their costs.

In the event that your insurance company does not offer an advanced death benefit (or you don’t qualify for one), you may still be able to access funds by selling all (or a portion) of your policy. Contact us to explore this option.

Can I sell a portion of my life insurance policy?

There are two ways policyholders may be able to maintain a portion of their policy’s death benefit while selling the remainder. Before we explore the two options, it’s important to know that these structures can be complicated. If you want to move forward with one of these transactions, make sure you’re represented by a competent life settlement broker who knows all the details that may apply to your case.

With that in mind, the simple way is to divide the original policy into two policies. Insurance companies will often allow you to split the policy in two if each policy maintains a minimum face amount (usually $250,000). Once the policy is split, one of the policies can be sold and the original owner/policyholder will retain ownership of the other. This is the cleanest way of selling a portion of the death benefit that benefits both the buyer and the seller. 

In the event that a policy cannot be split, a type of sale called a “retained death benefit” can be employed. Under this structure, the buyer becomes the new owner of the policy and is responsible for all the premiums needed to keep the policy in force.

In return for a lower sale price, the buyer agrees to assign the seller’s beneficiary as a partial beneficiary on the policy. When the policy matures, the seller beneficiary is entitled to the portion of the death benefit specified in the retained death benefit agreement. Another advantage of this structure is that it relieves the current owner of paying any premiums while allowing their beneficiaries to retain a portion of the death benefit.

What type of life insurance policies can I sell?

Most life insurance policies can be sold as a life settlement, including term life insurance, universal life insurance, variable life insurance, joint life insurance (first or second to die), whole life insurance, and group life insurance policies. 

It is important to note that there are some group policies that cannot be sold, but they can be assigned. Depending on the terms of the group contract, these policies may also be eligible for a life settlement.

Can I back out after I sold my policy?

There are three periods in a life settlement transaction.

First is the contract period. This covers the time from when you sign the contract until you receive payment. During this period, you can back out of the settlement by simply letting your broker know that you want to back out of the transaction. 

The period immediately after you receive payment is known as the rescission period. This period typically lasts fifteen days (but may vary), where you can rescind the settlement by returning the money and letting the buyer know of your desire to nullify the sale. It is important to note that this option is not available in all 50 states. Reach out to us to discuss your situation.

Once the rescission period is over, the sale is final and the buyer owns the policy. 

Get Custom Support

We hope this was a helpful overview of your most pressing questions regarding term life insurance. 

Remember that this information is intended to be a loose guide to questions you have about the life settlement industry, not specific information for your unique policy. When in doubt, contact us here for more tailored support.

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