Since there is little benefit while the insured is still alive, many individuals believe that life insurance is an unnecessary expense. Since a beneficiary does not absolutely need a payout after death to avoid financial difficulty, this notion might be particularly prevalent among people who own their homes, have adult children, or have very few assets and no dependents.
It could be time to consider selling your life insurance policy if you currently have one and believe it is no longer necessary. An easy option to have cash on hand for other costs and get rid of the burden of monthly premium payments is by selling your policy for a cash settlement.
Although selling your policy is an option, there are a number of things to consider when looking for a buyer to ensure you're getting the best price.
Buying and Selling Life Insurance
The formal word for selling your life insurance policy for a one-time cash payment is "life settlement." Investors are typically searching for life insurance policies to add to their portfolios.
Investors looking to purchase your insurance policy on the secondary market prefer sellers who are over 65 and have short life expectancies. Because the buyer receives the policy's death benefit after you pass away, those plans are the most advantageous for an investor.
Naturally, high-value plans pique investors' interest the most. The overall policy value and the life insurance company's issuer rating, where "A" or higher is preferable, are contributing considerations.
To pay as little in premiums as possible, investors may seek universal life insurance policies with affordable or flexible prices. If you have different insurance, your policy may still sell, but the offers might be less.
You'll need to locate a broker or a life insurance settlement business to sell your policy. They will serve as a middleman in the deal and can direct you toward a potential buyer. Remember that brokers and settlement firms are associated with fees so you won't receive the total selling price.
Five Suggestions for Selling a Life Insurance Policy
It's challenging to sell your life insurance policy. Finding an investor prepared to make you an acceptable offer can sometimes be challenging. You can, however, increase your payout in a few different ways. Here are five suggestions to remember:
1. Get to know the process
Before you headfirst into selling your life insurance policy, it's a good idea to have a firm grasp of how it operates and what to anticipate. Make sure you know the sort of policy you have, the scope of the coverage, and the account's cash value balance. Additionally, research your state's laws and guidelines regarding the sale of life insurance products.
2. Take into account working with a neutral advisor
Find a life insurance settlement specialist and ask them to evaluate the worth of your policy. Independent experts can provide evaluations of the value of your life insurance policy. They can also suggest brokers, tell you about features that can offer value, and help fill in the gaps.
3. Track out a reliable broker
Interviewing multiple brokers is an excellent strategy for locating the best one. What can you do to improve the offers I receive, for example? What is the breakdown of your commissions? Can it be negotiated? In your state, do you have a license?
Do you have any discounts available if I pay for my own medical bills? The transaction expenses should be closely monitored because they tend to consume your profits. According to some experts, brokers may charge as low as 5% to 15% or as much as 30% to 50% of the gross insurance amount.
4. Receive several proposals
Expect a wide range of responses to your offers. In Hollywood, Florida, William Mountain, CEO of Institutional Life Settlement Advisors, claims that "people think one or two bids are the be all and end all."
But this market is entirely negotiated. Another corporation doubles and triples an offer. It is worthwhile to take your time and wait for a solid offer, keeping in mind that the best offer might not be the one that comes along first.
5. Gather your documents
Your broker will give prospective buyers a copy of your life insurance policy. But in order to assess the worth of your coverage, purchasers will also ask to check your medical records. Mountain states, "We need a five-year medical history covering general care and specialists. He says that acquiring this information can set you back several hundred bucks and take a lot of time.
I have a life insurance policy, why should I sell it?
In specific financial circumstances, selling your life insurance coverage may be a wise decision.
Selling the policy can reduce the strain of a monthly payment and return at least some of that money to your pocket if you can no longer afford your life insurance premium. A life insurance settlement typically yields a greater payout and may thus be a better option for some even though you always have the choice to simply cancel or surrender your policy to stop paying premiums.
If you need to cover a significant unforeseen expense, selling your life insurance policy can also be worthwhile. For instance, you might be able to sell your life insurance policy and use the proceeds to pay for medical expenses if you are given a terminal illness and need to pay for treatment.
Selling your policy is often viewed as a last alternative since, if you have a permanent life insurance policy, you might be able to borrow against your policy's cash value to pay for medical costs. If your policy provides an accelerated death benefit, you can use the money to assist pay for therapy while you're still alive.
In the end, selling your life insurance policy might be a sensible decision if the payout or lack of premium payments could benefit you immediately, and you do not need to leave a death benefit to any dependents.
Life insurance policy alternatives to selling
The necessity for money may be a typical justification for selling a life insurance policy. Selling your life insurance is one option, but many others are frequently simpler and easier if you need money immediately. Before selling your life insurance policy, you should take the following into account:
Accelerating the Term: It might be possible to collect your life insurance proceeds while you're still living, depending on the type of policy and insurer.
Obtaining a loan against the policy's cash value: Taking out a loan against the entire face value of your life insurance policy carries monthly interest charges that go toward repaying the money you borrowed. Usually, only having a permanent life insurance policy makes this possible.
Giving up the policy: Even though the payout may not be substantial, surrendering your life insurance policy allows you to access some cash right away in the form of the surrender value while removing the need for any further premium payments.
Getting a personal loan from your bank is generally a simpler option if you find yourself in a tough place. Although there is an interest charge, the rates are typically lower than those for conventional payday loans.