Everyone goes through financial ups and downs in their life, and if you’ve been struggling financially, you may be thinking about selling your life insurance policy. Depending on the type of policy you have, you may be able to sell your policy instead of leaving it to your beneficiaries. The amount of money you’ll get for selling your life insurance will depend on the specific terms of your policy. Here’s what you need to know about selling your life insurance before your death.
What Is a Life Insurance Settlement?
There are a few different ways you can get money from your life insurance policy. The first is called a life insurance settlement, which is when you sell your life insurance to a third party for an amount that you both agree on. You’ll receive a lump sum directly from the buyer. These transactions are sometimes called viatical settlements. By purchasing the policy, the buyer becomes the beneficiary, so they will receive money from the insurance company when you die. They will also pay any premium payments you may have left.
How Much Money Can I Make From a Life Insurance Settlement?
Not everyone can sell their life insurance policies. Buyers normally look for older people to buy from so they can get their death benefits sooner. In fact, many buyers have an age minimum of 60 or 65 for their sellers. They also will ask you questions about your health to get an idea of how long you might live. The amount of money you’ll get for your life insurance settlement is fairly low, usually between 20 and 30 percent of your death benefit value. You will also likely be charged fees by your brokerage for the sale. While this might be more than the cash value of your policy, it’s not always enough to justify selling your life insurance.
How Pricing is Determined
A buyer will take into account a few factors when they offer you a price for your life insurance policy. It is a pretty straightforward pricing model for the most part. They will take the face amount of your life insurance, the number of years expected to be left in your life based on your age and health, and the cost of the premium payments. They will also take into account the current cash surrender value of your policy since it doesn’t make sense for anyone to sell their policy for less than it is worth to surrender it. Expect that buyers want a pretty significantly high rate of return so your price will most likely be discounted pretty steeply from your face amount. You will get more value if you are closer to death and if the premium payments on the policy are lower.
Why Types of Life Insurance can be Sold
In general, a buyer will only purchase a permanent form of life insurance because they are not guaranteed on collecting anything on a term policy. Some buyers may consider a term policy if you are terminally ill. However, most life insurance policies come with an advanced payout option for terminally ill patients so that the beneficiaries can collect the money early, so it may not make sense to sell the policy in this case. Whole life insurance is the most commonly sold type of policy in a viatical settlement.
When Should You Sell Your Life Insurance Policy and When Should You Keep It?
Selling your life insurance policy isn’t always the right decision – it really depends on your personal financial situation. The best reason to sell your life insurance is if you don’t have the money to make your payments anymore and the only other alternative is to let the policy lapse. If you let your policy lapse, you won’t get anything from it, so you will have paid monthly premiums for nothing. However, if you sell your policy, you’ll at least have your lump sum, which you can use for anything. You can even opt to put some of it into savings for end of life expenses.
If you can continue paying the premiums on your life insurance, it’s almost always better to keep your policy than to sell it. It’s important to remember that once you sell your policy, your beneficiaries will no longer get any money when you pass. This means that they will be responsible for funeral arrangements, debt payments, and any other expenses that come along with the end of your life. Selling your life insurance policy usually does not have enough financial benefits in the short term to outweigh the long-term problems it can cause. Keep in mind why the life insurance was purchased in the first place. It provides financially for your beneficiaries after you die. It can also leave a legacy, and give money to a charity. If the reasons you purchased the life insurance to begin with no longer applies, then you can consider selling it.
Life insurance settlements are often marketed to older consumers, and the language around them can be very misleading. If you’re looking into getting a life insurance settlement, it is important to make sure you fully understand the terms of the sale and how much money you’re getting. These settlements are sometimes marketed as a way to make a huge sum of money when in reality you’re actually giving up life insurance protection that will help your family. It may be helpful to have a lawyer look over the sale contract before it is finalized, just to make sure there aren’t any hidden fees or provisions you don’t know about.
Are There Other Ways to Get Money out of Your Life Insurance Policy?
Depending on the type of life insurance you have, there may be other ways to get money if you need it, without taking out a life insurance settlement. If you have a universal or whole life policy that has cash value, you may have the option to borrow money from the policy and pay it back later. This is a good solution if you’re having temporary cash flow issues. This way, you won’t lose any of the money you’ve accumulated on your policy already. Some life insurance policies may also allow you to surrender your cash value, so you can take the money you’ve accumulated without losing your entire death benefit. If you’re struggling to make payments, you can usually put your cash value towards your premiums as well, so you won’t forfeit your policy.
Some companies also offer policy riders that allow you to access your death benefit early in specific situations, such as a serious injury or chronic illness. In these cases, you can access your death benefit in measured monthly increments, which you can use to pay medical bills and other key expenses. Adding this type of rider to your insurance policy may make it slightly more expensive, but it can protect you financially later on in life.
It’s important to be very careful when selling your life insurance policy. Although there are some situations where it makes sense, in many cases you’ll end up losing more than you gain. Read the terms and conditions of the sale thoroughly to make sure the sale is actually benefiting you.