Can I Sell My Life Insurance Policy?

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

Can I Sell My Life Insurance Policy?

Absolutely, selling your life insurance policy is an option. But deciding if it’s the right move for you gets pretty complicated. There are a bunch of legal and financial things to think about first. And often, there are other options you might want to look into before deciding to sell your policy.

Regardless of the choice you are leaning towards, not all life insurance policies qualify for a life settlement.

In general, there are a few 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, and you are over 65 years old, there is likely a buyer for it. If the insured’s health has deteriorated from when he purchased the policy the likelihood of finding a buyer increases. 

If the insured is healthy, 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

sell life insurance policy
Yes, you can sell your life insurance policy. The choice on whether or not you should do so is a much more complex question.

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 some group policies cannot be sold but can be assigned. Depending on the terms of the group contract, these policies may also be eligible for a life settlement.

Factors that Determine the Value of Your Life Insurance Policy

Several key factors play a crucial role in determining the value of your life insurance policy.

  • Age: Often, the policyholder must be at least 65 years or older to qualify for a life settlement.
  • Policy Value: The face value of your policy must be at least $100,000 for buyers to consider purchasing your policy.
  • Manageable Premiums: The life settlement buyer will need to be able to make future premium payments after the purchase to keep the policy in force until it matures. Policies with relatively low premiums and premiums that do not increase at a very high rate are more attractive than policies with high premiums. A buyer may ask you to provide details of premium payments along with your policy for evaluation.
  • Health: Your health condition likely has the most significant impact on the value of your policy. If you have any severe medical conditions or a terminal illness, you will get higher offers than an insured in perfect health.
  • Type of Policy: Some policies are more attractive to buyers, such as universal, convertible term life, and whole life insurance policies.

Every buyer has their criteria for the types of policies they are looking for. It is important to talk to a competent life settlement specialist who can help you find the right buyer for your policy and negotiate a fair price. 

What’s The Minimum Age To Sell My Life Insurance Policy?

Most life settlement transactions happen when the seller is at least 65 years old. This age requirement is because as age increases, the life expectancy of the insured decreases, resulting in a shorter period for the buyer to hold onto the policy until it matures. Approximately 80% of policies sold as life settlements are for policy owners aged between 65 and 85.

If the insured’s health is poor and the life expectancy is low, the policy may be able to be sold as a life settlement even if the seller is younger than 65. Buyers will review the medical records, and if they determine that the insured’s life expectancy is within their range, they will make an offer. There are no age requirements for these policies, but the younger the person, the more serious the condition would have to be to attract any life settlement buyers. 

Some buyers would purchase policies for insured people above 60 years old if the premiums are relatively low. No buyer is interested in purchasing a policy on an insured with a life expectancy of more than 25 years. 

What is the Preferred Policy Value for Buyers in Life Settlements?

Buyers of life settlements are generally interested in policies with a face value of at least $100,000. A lot of paperwork and legal processes are involved in buying a life settlement, so it is not cost-effective for smaller policies.

Some buyers will purchase policies with a face value of $50,000 or more if the premium and the life expectancy are relatively low.

Typically, policies with face values of anywhere from $100,000 to $5,000,000 are priced similarly for buyers. Some buyers will only consider policies with a face value of $2,000,000 or more, while others will only look for policies with a face value of less than $1,000,000.

For policies above $5,000,000, the pricing will come down somewhat. The decrease in pricing is because it is hard for buyers to find enough of these policies to create a pool of enough policies that will adequately spread out the risk of any of these policies not maturing in the desired timeframe.

How Do Premiums Affect The Eligibility And Value Of A Policy For A Life Settlement?

Premiums play a significant role in determining whether your policy will be eligible to be sold as a life settlement. Before investors decide to buy your policy, they will look at the premiums you are paying and how long they will likely have to pay them before seeing a return on their investment.

Investors want to pay the minimum premiums to keep the policy in force. They will actuarially calculate the optimum premium, the premium that gives them the lowest possible outlay over the expected life of the policy. Often, there is cash (sometimes hidden) in the policy, and investors will not have to pay any premiums for several years until the cash in the policy can no longer cover the cost of insurance. Life settlement buyers take everything into account when coming up with a bid on your policy. 

Investors are also concerned about the future premium rates. If your premiums are affordable in the near term but will skyrocket in the coming years, investors will value such a policy less. 

Policies best positioned to be eligible for a life settlement have low premiums and premiums that are projected to increase at a manageable rate in the future.  

How Does Health Affect Policy Value?

Health is a crucial factor in determining the value of life insurance policies. While many policies on healthy policy owners sell on the life settlement market, the highest offers are to insureds in poor health. The percentage of face value for the same policy and the same future premium stream can vary from 5% of face value to over 75% of face value, depending on the health of the insured. For a policy with a face value of $1,000,000, the offer can range from $50,000 to over $750,000, depending on the insured’s health.

This is because a shorter life expectancy means less time for the investor to recoup their investment and make a profit. Thus, an insured individual’s poor health increases their policy’s value.

Even insureds with slight impairments will receive a premium for their policy. Investors determine the pricing of the policy based on life expectancy reports furnished by life expectancy companies. Something as minor as high blood pressure can significantly increase the offer buyers will present to you.

Understanding why the buyer needs access to your medical history is important. Denying access will only cause the offer made to you to drop. They will assume you are in perfect health and price the policy accordingly.

What Types Of Life Insurance Policies Are Eligible For Life Settlements?

The life settlement market legally allows for selling nearly all types of policies. One notable exception to this is a STOLI (Stranger-Owned Life Insurance) policy. A STOLI is a policy that was taken out by an investor or with intent to sell to an investor. As there is no as the owner has no insurable interest in the policy, the policy is deemed as having been taken out on fraudulent terms. MAny states have explicitly banned STOLI policies for example, California banned the sale of STOLIs in 2009, codified under California Insurance Code Section 10113 et seq. Under California law, any party purchasing a life insurance policy must have an insurable interest in the insured person.

In many states existing STOLI’s that pass the contestability period are non contestable meaning that even though the policy was taken out under fraudulent terms the policy is still enforceable.  Regardless, they are still unattractive to investors. 

Universal Life, Whole Life, Term Life, and Joint policies are all examples of life insurance types investors are interested in purchasing through a life settlement transaction.

However, not all policies will have the same value on the market. Investors are primarily interested in Universal Life policies because they can optimize the premium stream, lowering the cost of holding the policy in the early years after purchasing it. Optimizing the premiums will increase the total return on investment they can expect on the policy.

Investors also seek term life policies, especially if they have a conversion privilege. This privilege allows the policyholder to convert their term life policy into a permanent one without undergoing a medical exam. If the term policy does not have a conversion privilege, the policy may still have value on the life settlement market if the insured’s health is poor.

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, when you have the contractual right to pay the premiums and return the policy to good standing. 

Your policy will lapse if you don’t pay the required premiums during this period. If your policy lapses, it still may be reinstated, but it will be up to the insurance company to determine whether or not to reinstate it. 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 up to 60 days (depending on the company and the policy size). 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 immediately 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 it (instead of going to waste), please contact us as soon as possible. We may be able to help, but time is of the essence!

My Policy Is In “Grace,” Can It Be Sold?

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. 

Generally, a policy 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 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 as soon as possible. An investor may be interested in paying the fees to reinstate the policy before they purchase it. If your policy is in grace and you think it can be sold, you must act immediately!

Related Read: Life Insurance Lapse: Understanding Why Policies Lapse

Can I Sell A Part Of My Life Insurance Policy?

Policyholders have two options to retain a portion of their policy’s death benefit while selling the rest. However, it’s important to note that these structures can be complex. If you decide to pursue one of these transactions, having a competent life settlement broker well-versed in all the relevant details is crucial.

One straightforward approach is to divide the original policy into two separate policies. Insurance companies often allow this division, provided each policy maintains a minimum face amount (typically $250,000). After the policy is divided, one part can be sold, while the original owner maintains ownership of the other portion. This approach benefits both the buyer and the seller, as it allows for the sale of a portion of the death benefit.

If splitting the policy is not feasible, a “retained death benefit” sale is another option. In this scenario, the buyer becomes the new policy owner and assumes responsibility for all the premiums required to keep the policy active. In return for a lower sale price, the buyer agrees to designate the seller’s beneficiary as a partial beneficiary on the policy. When the policy matures, the seller’s beneficiary is entitled to the specified death benefit portion, as outlined in the retained death benefit agreement. This structure relieves the current owner from paying premiums and enables their beneficiaries to retain a portion of the death benefit.

Can I Receive A Part Of The Death Benefit From My Life Insurance Policy Now?

Many policies offer an accelerated death benefit rider, allowing policyholders to access a portion of the death benefit while still alive. This benefit is usually available to terminally ill individuals with a life expectancy of less than 24 months. Note that even without an explicit advanced death benefit rider, many insurance companies will still advance a portion of the death benefit in cases of terminal illness. It’s wise to inquire!

Insurance companies will verify that the insured meets the terminal illness criteria to approve an advanced death benefit by reviewing medical records. They deduct a small portion of the accelerated death benefit to cover their costs.

If 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 Borrow From Life Insurance?

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. You can borrow from your policy if there is a positive cash value. However, borrowing from your policy will reduce the death benefit by the loan amount.

You will also be required to pay interest on the loan amount, and the longer the loan is outstanding, the more interest you will have to pay. If you do not repay the loan before the policy matures, the outstanding balance will be deducted from your policy’s death benefit.

People might consider borrowing against their life insurance policy for various reasons. One common reason is for emergency expenses or unexpected financial needs. In this case, borrowing against a life insurance policy can be viable as it typically has lower interest rates than traditional loans and does not require a credit check.

Another reason for borrowing against life insurance is for investment opportunities. Some policies offer the ability to invest in funds earning higher returns than the policy’s cash value growth. By taking out a loan, you can access these funds without having to withdraw from your policy, which can have tax implications.

Can I Back Out After I Sold My Policy?

A life settlement transaction consists of three periods.

The initial period occurs before signing a contract with the seller. You may have already agreed with a broker, but it’s important to note that you are not obligated to sell your policy and can withdraw at any point.

The second period is the contract period, also known as the moment you sign the purchase agreement. This phase extends from the contract signing until you receive payment. You can withdraw from the settlement within this timeframe by informing your broker of your decision to back out.

The period immediately following the receipt of payment is called the rescission period. Typically spanning fifteen days (though this duration may vary), you can rescind the settlement by returning the funds and informing the buyer of your intent to nullify the sale. It’s important to note that this option may not be available in every state. If you have any questions or concerns, please contact us to discuss your situation.

The sale becomes final once the rescission period concludes and the buyer assumes ownership of the policy.

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