Should You Sell Your 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

Here Are 7 Key Post-Sale Considerations Before You Do.

Are you thinking about a life settlement? It’s a big decision that comes with plenty of questions and, sometimes, a few nerves. 

One of the more startling concerns some people have is whether selling their policy might put them in danger. Let’s unpack that and other important worries to make sure you’re fully informed on whether you should sell your life insurance policy.

Whether you’re worried about investors knowing too much about you, what happens to your medical records, or if you’ll owe Uncle Sam a hefty check, we have the answers to help you navigate this complex process. 

1. Does Selling My Life Insurance Incentivize Foul Play?

One worry we’ve heard over the years is: “If I sell my life insurance, does that incentivize someone to kill me so they can collect my death benefit sooner?”

Here are key points to consider that might ease some of your worries:

  • Safety in Numbers: After selling your life insurance policy, your policy is grouped with hundreds of others. Investors who buy these policies don’t know who you are personally, and a third-party servicer is responsible for managing the policy.
  • Historical Record: In the past 40 years, there haven’t been any reported cases of foul play to cash in on a life settlement. This track record suggests that selling your life insurance policy does not include personal risk.
  • Investor Profile: The typical investors in life settlements are large hedge funds or pension funds with billions of dollars in assets under management. Consider a $250,000 life settlement, based on average numbers from the Life Insurance Settlement Association. This is a relatively modest sum to these affluent investment managers, who are interested in financial gain through legal, low-risk means.

2. Will the Buyer Still Have Access to My Medical Information After I Sell My Life Insurance Policy?

Yes, the buyer will still have access, but it’s limited and clearly defined in the law. Here’s the information the buyer will have and the rules around how it works:

  • Medical Records Access: Buyers require your medical records to assess the policy’s value. You’ll need to sign a Health Insurance Portability and Accountability Act (HIPAA) release and a limited power of attorney to facilitate this.
  • Revoking HIPAA: Once you sell your policy, you legally can revoke the HIPAA release, limiting further access to your medical records, although you did agree to allow the buyer future access. 
  • Monitoring the Death Registry: The buyers periodically check the Social Security death registry to identify if the insured has passed away, allowing them to claim the policy’s benefit accordingly.

3. Do I Still Have to Talk to the Buyer After the Life Settlement Is Done?

After the sale, the buyers may contact you occasionally to verify your health status or update your address details. You don’t have to respond to these inquiries, and many states have laws around how often these contacts can happen. For example, in New York, “The contacts shall be limited to once every three months if the insured has a life expectancy of more than one year, and no more than once per month if the insured has a life expectancy of one year or less.”

Also, when you sell your life insurance, you’ll designate someone who the buyer can reach out to if you’re unavailable, impaired, or simply don’t want to talk to the buyer. Usually, this designee is someone (or multiple people) like a spouse or child.

4. Will I Owe Taxes on My Life Settlement?

No, in most cases, you won’t owe taxes on your life settlement. The Tax Cuts and Jobs Act of 2017 dramatically changed life settlement taxes, so make sure you’re getting updated information from a trusted source. There are many myths floating around about this topic.

5. Will I Lose My Healthcare or Public Benefits?

As the Financial Industry Regulatory Authority (FINRA) notes, your life settlement might “negatively impact your ability to receive state or federal public assistance such as Medicaid.” Talk to a trusted financial advisor if you think your benefits may be impacted.

6. What If I Change My Mind After I Sell My Life Insurance Policy?

Most states offer a grace period (also called a rescission period). During this time, you can cancel your contract if you have second thoughts. In this case, you’ll need to return the money the buyer paid you as well as any premiums they paid.

If you want to cancel your life settlement, you’ll need to notify the buyer within a certain time frame, usually 10-30 days depending on the state. After that time, the sale is final.

7. Can Creditors Come After My Life Settlement?

Yes, creditors may be able to access the money you get from selling your life insurance policy. Speak with a financial advisor if this is a concern.

Frequently Asked Questions About Selling Your Life Insurance

What Happens When You Sell Your Life Insurance?

When you sell your life insurance, the buyer is entitled to its cash value, and your family will not receive the death benefit if you pass away. A provider will require the beneficiary to sign off on the sale before completing the life settlement process. 

What Happens to a Life Insurance Policy if a Person Sells It? Can They Still Collect on the Policy?

When you sell a policy, the buyer immediately becomes the beneficiary. Once ownership is transferred, you will have no rights to any future payouts from the policy.

What’s the Best Company to Sell Your Life Insurance Policy to?

The best company is the one that offers you the most money, which isn’t the same company in all cases. Some buyers are competitive on certain types of policies, and other buyers may be more competitive on others.. We recommend contacting us for help in getting the best offers.

Sell your life insurance policy for cash.

See if you qualify now.

We’re here to help. Speak with a Policy Specialist today at +1 848-456-8333