If you think you no longer need life insurance coverage, you may be wondering if it’s possible to sell your life insurance policy. It’s important to remember that selling your policy means your beneficiaries would no longer receive the death benefit when you pass away. However, if they will be well-supported without your death benefit after you pass away, you may be considering selling your policy for its overall cash value. Here’s what you need to know about selling your life insurance policy.
How do you sell a life insurance policy?
You can typically sell your life insurance policy to a life settlement broker or company if it’s worth $100,000 or more and you’re of a certain age. When you sell your life insurance policy, it’s called a life settlement (also known as a viatical settlement). The broker or company will pay your premiums and receive the death benefit when you die.
Reasons Why People Sell Their Life Insurance Policy
There are many reasons people consider selling their life insurance policies. Whether you no longer need coverage, your term length is almost up or your policy is no longer affordable, the option of selling is one to consider. Oftentimes, seniors and terminally ill individuals will have the most success selling their policy.
Pros of Selling Your Life Insurance Policy
Selling your life insurance policy can make sense depending on your unique needs and financial situation. There are a few benefits in which you may consider selling your life insurance policy for cash, including:
No more premium payments: Because you’ll no longer be responsible for your policy’s premiums, you’ll have more cash in hand to put into savings or use for other expenses.
More cash value than surrender value: When you surrender your policy, you typically settle for cents on the dollar, while selling the policy can typically net a 50-75% return on its value.
Return of money you’ve paid in: You can feel assured that the time you spent paying into your policy didn’t go to waste, even if you aren’t using the policy as you originally intended.
Access to cash: If your beneficiaries are well-supported and won’t need to rely on your death benefit, then selling your policies and having access to the cash will help you pay debts, save for retirement or use it however you choose.
Cons of Selling Your Life Insurance Policy
There are also situations where selling your life insurance policy won’t be the best option. While the extra cash may seem appealing, there can be some downsides to selling your policy, including:
Low payouts: While the cash payout may seem significant in the moment, it will still likely only be a fraction of the worth of your policy.
High overhead costs: The buyer will take a commission on your policy, reducing the value you get overall.
Potential tax liability: The amount you receive from the sale of a life insurance policy will typically be subject to income tax.
Potential ineligibility for financial assistance: Selling your life insurance policy may affect your eligibility for certain government benefits, like Medicaid.
Beneficiaries no longer receive a death benefit: If your beneficiaries aren’t in a position where they can support themselves without your death benefit after your passing, then selling your policy will leave them without a financial safety net.
Alternatives to Selling Your Life Insurance Policy
You may find that selling your life insurance policy isn’t all that beneficial for you or your beneficiaries. Cancelling your current policy, adding riders, or finding a way to lower your monthly premium may be a better solution. Some carriers may allow you to lower your coverage amount, which could help reduce the cost of premiums.
If you have a whole life insurance policy, you may be able to surrender your coverage and receive some of the cash value or you can use your accumulated cash value to help pay for premiums.
Have questions about your policy options? Let SelectQuote help.
There’s a lot to consider when making decisions about life insurance. Whether you want to sell your policy, update it or purchase a new one entirely, we can help. At SelectQuote, we search highly trusted carriers in just minutes, easily comparing plans and rates to help you find the right fit for coverage.
