HOW TO SELL A LIFE INSURANCE POLICY: EASY GUIDE

When selling your life insurance policy, there are many factors to consider. For starters, it is a good idea to choose a reliable broker and obtain several bids. But remember that there are alternative options, so it doesn’t matter how much money you could make selling life insurance. Additionally, if you have a term policy, consider acquiring a personal loan instead or accelerating the term. Regardless of the course you choose, you should thoroughly weigh your options before deciding. So, in this article, we have covered all the information on how to sell a life insurance policy.

What’s the Process for Selling Your Life Insurance Policy?

A life settlement is the procedure for selling your life insurance policy (or a virtual settlement in specific circumstances). This procedure involves selling your policy to a third-party investor in exchange for a lump sum of cash that can be used for any purpose, such as paying off debt, taking a trip, or covering retirement living expenses. Once your insurance policy is sold, the buyer is responsible for paying your premiums for the balance of your life, and they will get the death benefit from your policy upon your passing.

Working with an experienced third party like Harbour Life Settlements can guarantee you receive a fair value for your policy, as the life settlement process can be intimidating and difficult for most people. Before starting the procedure, you must choose whether to collaborate with a provider or a broker.

#1. Broker

A broker is an independent business or person who acts as your representative during the life settlement procedure. When you deal with a broker, they will offer your policy to their network of purchasers and attempt to obtain as many bids as possible, driving up the cost and increasing the case value.

To connect more buyers and sellers than ever, Life Settlements collaborates with its sister firm, Life Brokerage, which operates the world’s most sophisticated online settlement auction platform. This innovative online exchange expedites the process so your policy can be presented to more buyers, increasing the number of offers and value for your policy. The traditional life settlement process is laborious and slow, restricting the number of people to whom your policy can be presented.

#2. Provider

The business or investor who makes an offer and buys the policy is referred to as a provider. A provider wants to purchase your policy at the lowest feasible price to make the most money. Working directly with them is an option, but the drawback is that your policy will only receive one offer, reducing its potential worth.

How Much Will My Life Insurance Policy Sell For?

Many people are unaware that one of their most significant assets—sometimes even worth more than their house—is their life insurance policy.

The amount of money you receive from a life settlement varies based on several criteria, but if you sell it, you might be able to obtain as much as 60% of the death benefit value, which is a lot more than you would if you surrendered or lapsed it. Use our life settlement calculator, get in touch with us for a free estimate, or take into account the following elements that go into policy valuation to find out how much your policy is worth:

#1. Life expectancy

Life expectancy, which is determined by looking at the policyholder’s age and health, is an estimate of how long they should live. A shorter life expectancy increases the policy’s value since the life settlement buyer expects to pay fewer premiums over time. The buyer of a life settlement must continue paying insurance premiums for the policyholder’s life.

#2. Premiums Cost

As previously mentioned, the policyholder must pay premiums for a life insurance policy until their death. As a result, the price of premiums plays a significant role in the policy’s evaluation. A lower maintenance cost for the policy due to low premiums raises the value of the life settlement. High premiums, on the other hand, make the purchase more costly and hazardous for the buyer, which causes the offer to drop.

#3. Value of Death Benefit

When a consumer buys insurance, they are essentially investing in the death benefit; therefore, a higher death benefit corresponds to a higher payout. Higher offerings are thus usually the consequence of an excellent policy. But, depending on the other conditions mentioned above, even a tiny policy could be worth a significant amount of money.

Why Should I Sell My Life Insurance Policy?

Selling your life insurance policy under specific financial circumstances might only make sense.

Selling the life insurance policy can reduce the monthly payment load and return at least some of the premium money to you if you cannot continue paying it. While surrendering your policy and cancelling your monthly premiums is always an option, some people may find that a life insurance settlement yields a higher payout and is preferable.

If you need to pay for a significant unforeseen expense, selling your life insurance policy can also be beneficial. For instance, if you are diagnosed with a terminal illness and need to pay for treatment, you can sell your life insurance policy and use the benefit for medical expenses. Selling your policy, however, is usually seen as a last resort because, if you have a permanent life insurance policy, you can borrow against the policy’s cash value to pay for medical costs. If you are eligible for an accelerated death benefit under your policy, you can use the money to help in covering medical expenses while alive.

Tips for Life Insurance Policy Sales

It’s not simple to sell your life insurance policy. It may be challenging to locate an investor prepared to make you a reasonable offer. You can, however, increase your payout in a few different ways. Here are five things to remember:

#1. Learn About the Procedure

Having a clear idea of how selling your life insurance policy operates and what to anticipate before getting too involved is helpful because it can be confusing. Ensure you know the kind of policy you have, the extent of coverage, and the account’s cash value. Additionally, research your state’s laws and guidelines regarding selling life insurance products.

#2. Think About Working with a Third-Party Advisor

Find a life insurance settlement specialist and have them determine the worth of your policy. You can get estimates of the value of your life insurance policy from independent advisors. They can also suggest brokers, fill in the blanks, and advise you about features that can offer value.

#3. Look for a Reliable Broker

Interviewing multiple brokers is a fantastic technique to follow while searching for the ideal one. Pose queries such as: How can I improve the offers I receive? What is the structure of your commissions? Can it be negotiated? In your state, do you have a licence? Will you reduce your prices if I cover my medical costs? Transaction costs should be closely monitored since they can significantly reduce your earnings. According to some experts, brokers may take a cut of between 5 and 15 per cent or as much as 30 to 50 per cent of the policy’s value.

#4. Receive Several Proposals

Expect a wide range of variations from your offers. The CEO of Institutional Life Settlement Advisors in Hollywood, Florida, William Mountain, says, “People think one or two bids are the end all and be all.” However, this market is entirely negotiated. Another company increases its offer by two or three times. It’s wise to take your time and wait for a competitive price, considering that the most excellent offer may not come in first.

#5. Gather Your Documentation

Your broker will send prospective purchasers a copy of your life insurance policy. But to evaluate the worth of your coverage, purchasers will also need access to your medical information. According to Mountain, “We need a five-year medical history, including primary care physicians and specialists.” He continues by saying that getting these records may be expensive and time-consuming.

Options if You Want to Sell Your Life Insurance Policy

The desire for cash is a frequent reason for selling a life insurance policy. Selling your life insurance is one option, but there are several simpler and quicker options if you’re looking for fast cash. Before selling your life insurance policy, you should think about the following options:

#1. Accelerating the Term

Depending on the policy type and insurer, you can get your life insurance money while living.

#2. Borrowing Money Against the Cash Value of the Policy

When you take out a loan against the entire value of your life insurance policy, you will be required to repay the loan amount plus interest each month. This usually requires having a permanent life insurance policy in place.

#3. Giving up the Policy

Even though the payout may not be substantial, surrendering your life insurance policy allows you to access the cash immediately in the form of the surrender value, removing the need for further premium payments.

#4. Taking Out a Personal Loan

Obtaining a personal loan from your bank is a more straightforward option if you’re in a tight place. Even though interest is required and bank loan interest rates have been rising, the rates are typically less expensive than conventional payday loans.

#5. Withdraw Cash Value

You can take out a portion of your policy’s cash value to suit your needs if it has any. However, unless you take out a loan against the value and repay it, this will lower your death benefit.

#6. Replacing Your Policy

You should consider doing so if you still want life insurance but aren’t happy with your present coverage. In this case, you would look for a new policy that better suits your requirements and then cancel the current one. Exchange your insurance for a new one with no tax ramifications by using the 1035 exchange. Should you come across a better policy elsewhere, doing so might be helpful.

Potential Cost of Life Insurance Policy

In a life settlement, an insured generally receives 10% to 25% of the policy’s death benefit; in a viatical settlement, the insured typically receives 50% to 85% of the policy’s face value. You can get as little as $10,000 in a life settlement if your policy has a $100,000 death benefit. However, if a terminal illness has been diagnosed, you may be eligible for a virtual settlement of $50,000 or more. The following are some variables that could affect how much someone receives from a life insurance settlement:

#1. Age

Because older people are more likely to pass away earlier than younger people, age brokers prefer to engage with policyholders who are at least 65 years old. This implies that purchasers will pay less for premiums and be able to realise a quicker return on their investment.

#2. Health

Health People who are not well typically make more money than those who are. Additionally, the policyholder’s ill health suggests they are more likely to pass away sooner.

#3. Policy Worth

To attract purchasers, brokers typically demand that policyholders who want to sell their life insurance policy have a death benefit of at least $100,000. Higher coverage limit policies usually result in higher pay than smaller policyholders.

#4. Security of the Insurer’s Finances

Insurance plans sponsored by firms with higher ratings for financial strength from independent agencies, such as Standard & Poors or A.M. Best, will cost consumers more. This shows that the business can fulfil its commitments to policyholders.

Pros and Cons of Life Insurance Policy

Your situation and end-of-life financial goals will determine whether or not you should sell your life insurance policy. Before making a choice, consult your beneficiaries and a competent financial planner.

Pros: Selling an insurance policy with a cash value will bring in some money.

Cons:

It’s challenging to locate a buyer. If you’re not sick, it may be difficult to obtain a fair deal because many purchasers won’t buy a policy unless they’re sure they can recover their investment.
Refunds are few. Your insurance will only get a limited death benefit payment, perhaps as little as 20% to 25% of the face value.
Brokers have costs. Typically, life settlement firms and brokers deduct a commission from your payout, which can reach up to 30%.
Taxes apply to the sale. The amount that you are paid is considered taxable income.
Your coverage expires. Most significantly, your beneficiaries won’t get any death benefit if you sell the policy; you will no longer be protected.

Is It Wise to Sell Your Life Insurance?

Selling your life insurance policy for a profit might be a wise move if you decide you no longer need it. This is particularly valid for people who are struggling to pay their premiums or who require a sizable amount of money immediately.

What is the Hardest Part of Selling Life Insurance?

The most challenging aspect of selling insurance is establishing trust with potential customers. It takes more than just selling them insurance and statistics; you also need to build a relationship with them, pay attention to their worries, and offer them all-inclusive answers.

What are the Advantages of Selling Life Insurance?

No further fees: Selling your insurance will earn you money, and you’ll also save money because you won’t have to pay premiums every month.
Less stress, more options: By having extra money from the sale of life insurance, you can improve the quality of your life throughout your retirement years.

Why Millionaires are Buying Life Insurance?

Rich people frequently want to use life insurance coverage to offset their estate taxes. One reason is that they often have to pay estate taxes even after utilising wealth planning strategies to lower their burden.

Conclusion

You can sell your life insurance policy, but doing so is debatable due to possible financial and legal ramifications. Consider your options before opting to sell. Adjusting, converting, or replacing your policy often makes more sense than selling it. Specific life insurance provides tax-free withdrawals from or borrowing against the policy’s cash value.

You ought to sell your life insurance policy if your only remaining choices are to surrender it or let it lapse. For policies they purchased in 2021, LISA members offered, on average, 7.8 times more than the cash surrender value. Just keep in mind that your life insurance payout could not be tax-free income and that it might have an impact on your ability to receive Medicaid and other public assistance programmes.