Selling a life insurance policy is not an easy decision to make. It’s like selling out your entire life. It requires days or weeks, or even months of critical thinking and considering several factors.
However, some conditions can warrant the sale of your life insurance policy. You can sell your life insurance policy to rake in cash to settle some pressing financial needs.
Suppose you are considering selling your life insurance policy. In that case, there are several things you need to know, things you have to consider, and things that have to do with both legal and government regulations guiding such transactions. You can find detailed
This article will discuss all you need to know before selling your life insurance policy.
What Does it Mean to Sell Your Life Insurance?
Selling your life insurance policy is complex; it has to be taken when there are no viable alternatives.
Selling your life insurance policy means that you are selling your life insurance to a third party who, upon the purchase, becomes the owner of your life insurance. Such a third party now takes ownership of your insurance scheme, pays the premiums, and collects the benefits when you die.
It means you don’t have access to or receive any benefits when you die. The buyer becomes the owner of the insurance policy. You can find more details on how to know if you can sell your life insurance policy at Insurist.
What to Know Before Selling your Life Insurance
The first thing you need to know about life insurance is what types of life insurance policies are available. There are two types of life insurance; life settlement and viatical settlement.
A life settlement is the sale of life insurance to a third party, as stated already. It usually involves healthy persons who wish to sell their life insurance due to financial needs.
A viatical settlement is also the sale of life insurance but usually involves aged persons or persons who have terminal diseases. These persons sell their life insurance because they have to meet serious health challenges.
These insurance policies can be either Term Life insurance or Permanent Life insurance.
A Term Life Insurance is a type of insurance that runs for a given term, usually ten years, 20 years, 30 years, etc.; it has a terminal date of duration and stops running. Permanent Life Insurance covers a whole lifespan, without end, unless the insured decides to terminate the contract.
What Determines Your Life Insurance Policy’s Worth?
Selling your life insurance is a pretty tough decision. If you’re doing it, you need to make sure you’re fully aware of the actual worth of your life insurance policy.
- Your Age
- Your Health Status
- Type of Insurance Policy
Age as a Benefit
Older persons tend to have a higher value in the sale of life insurance policies because it is expected that the aged seller is likely to die soon. Every buyer wants a quick return on their investment.
Life insurance holders above 65 years old will attract quick responses from buyers and receive higher offers than those below 65 years.
Your Health Status
Like the aged persons, any life insurance seller living with a terminal disease is also likely to attract higher offers from buyers. Conversely, anyone without serious health challenges may not attract good offers from buyers.
Type of Insurance Policy
The type of life insurance policy can determine how you sell your life insurance. One crucial factor to consider here is the insurance company handling your life insurance. A top-rated insurance company is sure to rake in more profit for you than others.
The amount involved in life insurance plays a significant role in determining what you get when selling your life insurance.
The policies offered by the insurance company are another factor to consider; whether it is a term, whole or universal policy has to be considered. Some life insurance coverage capacity goes up from $100,000 to $10,000,000 or even higher.
What Are the Pros and Cons of Selling Life Insurance
There are pros and cons to selling your life insurance policy. That is why it is recommended that you consider other options before embarking on this significant venture.
If you can no longer afford to pay your insurance premiums, selling your life insurance won’t be a bad idea. If you don’t have dependents anymore, maybe your children are grown, and you have outlived your life partner; that’s also an excellent time to sell your life insurance.
It brings you more needed money to take care of some vital needs. You can invest the money into other profitable ventures. Selling a life insurance policy can help you get some cash to care for your medical bills, especially if you are suffering from a life-threatening ailment.
Selling life insurance has its downsides. Although it affords you quick cash to solve some immediate problems, it may not turn out to be the best solution to the problem you intended to solve because:
- You don’t own any life insurance policy anymore.
- Your life insurance may be undervalued because of desperation on your part and may not get the actual worth of your insurance.
- Know also that you may have to pay taxes from the income generated from the sale of your life insurance policy, the same way you pay taxes on any property you sell.
- You have to pay the brokers who facilitated the sale or purchase of your life insurance. This means you have to part with a certain percentage of the total income.
A life insurance policy is your personal property. You are free to sell it just as you would any other property or entitlement you have. There are various options available to you. But you must ensure that the life settlement company is licensed to avoid illegal or fraudulent practices.
Bear in mind that your life insurance benefits are no longer available to you or your benefactors once sold. Ensure that you get the best offer from your life insurance because some insurance companies may want to capitalize on your immediate need to undervalue your worth.
Finally, know that selling your life insurance policy can disqualify you from Medicaid and other public assistance, so you should get the best out of it. To get the bang for the buck, you must consult a tax expert to help you reach this critical decision to sell your life insurance policy.