One of the questions people frequently ask us is “can I sell my life insurance policy for cash?” The short answer is maybe. Only certain people can qualify to sell their policies and there may be other options to consider, but it’s definitely an option worth exploring for many. Many people find that their old life insurance no longer serves the original purpose they bought it for. So for some people, it makes sense to sell the policy for money instead of continuing to pay the annual premiums.
Why Sell Your Life Insurance?
The most common situations that prompt someone to sell their life insurance is when they:
- You no longer want your policy.
Premium payments can be expensive to maintain and the cost may be more than the policy is worth.
- You no longer need your policy.
The beneficiary may no longer have a need for protection, or the policy-owner might have saved enough money to the point that they are “self-insured”.
- You can no longer afford your policy.
Being alive is expensive. The policy owner may have an underfunded retirement account or need to pay for medical treatments.
For instance, some policyholders originally purchased a life insurance policy to provide financial security for their children in the case they passed away, but today, their children have grown up and are financially independent. Other seniors have underfunded retirement accounts as a result of the 2007 financial crises and simply could use the extra infusion of money.
This sales process is formally called a Life Settlement. Some policyholders have just built up enough wealth that they are “self-insurance”, which means they no longer really need the life insurance to pass an estate onto their beneficiaries. Other seniors are experiencing large healthcare costs and turn to a life settlement to help fund this expense. There are many reasons to consider selling your life insurance.
What Is Your Policy Worth to a Buyer?
Get an instant estimate of value with this Life Settlement Calculator.
How Your Offer is Calculated
The way a life settlement works is that the policy owner receives an upfront cash payment in exchange for transferring ownership of the life insurance policy to a life settlement provider (a third party institutional buyer who specializes in purchasing life insurance). The buyer then continues to make the annual premium payments, and when the insured passes away, the buyer collects the policy’s death benefit.
All types of life insurance, Term, Whole and Universal, can be sold to buyers. In order to sell your policy, you generally must be at least 65 years old, but often at least 73 years old. The exception to this is if you have some sort of health condition. In addition to age, your life insurance policy must have a face value of at least $100,000. The older you are, the more valuable the policy. And the larger the policy, the more valuable the policy is. There are some exceptions to these qualifications, but they are handled on a case-by-case basis.
Your Policy Offer
The offers vary greatly from person to person depending on the factors we mentioned above. However, selling your life insurance can be a great option for many seniors because they can get an average of 20% of your policy benefit value up front, in cash. That means if you have a $200,000 policy, you could receive $50,000 for your policy. Ovid has helped consumers get as high as 50% of the death benefit as a life settlement offer by matching them with the right buyers. Furthermore, after selling your policy, you are no longer responsible for paying the annual premiums. The buyer of the life insurance continues to pay the annual premiums instead.
For policy owners who can no longer afford or no longer need their policies, selling your policy can be a great option. In addition to a life settlement, there are some alternatives, the most common of which include withdrawing from your cash value or taking out a policy loan.
Are You Eligible for a Settlement?
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There are a lot of different things that determine whether or not you’re eligible to sell your policy. The most important things are that you’re over 65 years old, you have a policy value of at least $100,000 and the policy coverage doesn’t lapse before you’re predicted to pass away. The next big factor is the cost of premiums – meaning is the policy affordable for an investor to both give you a payout AND keep paying the premiums till you pass away. The buyer of the policy will analyze your life insurance policy illustration to determine this – a document that shows the cost of keeping your policy in-force until maturity. You can get more information about eligibility for life settlements here.
Who Buys Your Life Insurance?
Every year, over $1 billion of life insurance is sold in the US life settlement market. Large institutional funds are the primary buyers of life insurance. They buy thousands of life insurance policies and turn them into diversified investments for their own account. When you are considering the sale of your life insurance, only deal with large, credible, institutional organizations. Be careful of smaller buying operations with poor reputations – remember, your life insurance is very personal. Here is a comprehensive overview of different kinds of life insurance companies.
The largest life settlement buyers in the market are GWG Life, Coventry, Magna Life Settlements, Abacus Life Settlements and Q Capital Group. All of these different buyers have a different process and each is looking for different kinds of policies to purchase. Some prefer to purchase large policies and some prefer small. Some prefer older insured persons and some prefer younger insured persons. It’s important to find a partner to help navigate these different buyers and make sure you get the best offer for your policy. Some of these large providers are on the Ovid exchange.
Getting a Valuable Offer
There are three ways to approach getting a life settlement:
Get Matched with buyers.
Different buyers are looking for different kinds of policies and insured persons to do a life settlement with (different ages, policy sizes, health status, etc). Ovid asks you a few questions and the instantly matches you with institutional buyers who are interested in your policy. The buyers have a fast process for dealing directly with policy owners that allows you to save the heavy cost of brokerage fees and agent fees.
You can get instantly matched with buyers here.
Use a life settlement broker.
The pros of using a broker are that you’ll likely get a higher settlement offer because the broker knows which buyers will pay the most for your policy and can bid the buyers up against each other. The broker also handles all of the transaction paperwork and busywork like pulling your medical records, running a life expectancy, etc. The downside of using a broker is that they likely take a commission. Depending on which broker you use, that commission could be as high as 30% of the settlement offer. Ovid get a referral fee from industry buyers if they purchase your policy – the Ovid fee is about half of the average industry broker fee. You can learn more about the life settlement process here.
Approach buyers yourself.
If you’re confident in your ability to navigate a life settlement transaction, you could approach institutional buyers yourself and try to get a deal done. But this is only recommended for the financially savvy person who has the patience and stamina to deal with large companies and a long and ugly process. Life settlement buyers have a history of giving uninformed consumers low offers. If you’re a senior and don’t know much about life insurance, you should consider finding a broker to help you.
Alternative Options to Selling Your Policy
Taking money out of your life insurance could be an alternative option to a life settlement. Most cash value insurance policies allow for the cash withdrawal of funds from the policy. The amount allowable depends on the company in question as well as the type of life insurance policy. As long as the life insurance policy is not a Modified Endowment Contract, then withdrawal is allowable up to the policy basis with tax penalty – which means that the funds are not taxed. However, you are expected to continue paying the annual premiums to keep the policy up to date.
Life Insurance Policy Loan.
Seniors that are not interested in selling their life insurance or taking cash from the policy may consider the loan option for temporary financial relief borrowing from their policy. This is done using the cash value of the policy as the collateral against the loan. However, it is important to remember that the amount will have to be repaid with interest and that you must continue paying your annual policy premiums. The benefit is that there is no qualification process like there is with a life settlement. As long as the policy contract allows it and there is a built up cash value, you can take out a policy loan.
Don’t Lapse Your Life Insurance
Every year, 4.5% of life insurance policyholders stop paying their life insurance and lapse their policy. This means that out of the $20 trillion of in-force life insurance, roughly $900 Billion lapses annually. Our biggest goal at Ovid is to make sure people understand that their is usually another option to lapsing their life insurance.
When you lapse your policy – it just becomes pure profit for the life insurance company because they get to keep your money and not pay out any additional money back to you. Don’t be a sucker for the life insurance company. Investigate your alternative options to lapsing your life insurance (including selling your policy through Ovid). You never have any downside to investigating a life settlement because it’s free to get an offer for your policy. Ovid and our buyers never pressure you into accepting an offer – only do it if it’s right for you.
People are increasingly turning to their life insurance policies for financial support. The three aforementioned options – selling the policy outright, taking a loan or withdrawing the cash – are all popular ways for people to get the money they need, particularly in retirement. So to answer the question “can I sell my life insurance policy for cash?”, yes – you should definitely explore this option if you have an unneeded or unaffordable policy and are in need of cash. Always explore a life settlement as an alternative to lapsing your life insurance policy.
Want to know your policy value?
Use this Life Settlement Calculator to get an instant estimate of value. It only asks for a few factors like age, health and policy value but can get you started.
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Ovid is a life settlement exchange. We instantly match you with institutional buyers who are interested in your policy, based on you and your policy profile. Getting an offer for your policy from Ovid buyer partners is completely free. If you do want so sell your policy, Ovid has proven to help obtain average payouts above the industry average. We’re based in San Francisco and have been featured in Forbes, US News, Business Insider for the incredible work we do for consumers. You can learn more about Ovid here.