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How to sell your life insurance policy

Fact-checked with HomeInsurance.com

Many people wonder, can you sell your life insurance policy? There are lots of reasons why you might want to sell your life insurance policy. Perhaps you have a deal lined up on a better plan or maybe you just need the money. Whatever the motivation, there is a set process, called a ‘life settlement,’ for selling life insurance policy for cash. Before you determine to sell, though, there are a few things to learn about whether selling your life insurance policy is a good idea.

How selling your life insurance works

The first step in selling your life insurance is to consider whether or not this is the right course of action for you. Once you sell your policy, there is no getting it back. If you do decide to sell, then you will want to contact a life settlement company. These are companies that buy existing life insurance policies.  Below is our step-by-step guide for how to sell your life insurance policy.

Get your policy appraised

The first thing you need to do is to have your policy appraised for its value. You can have this done by a third party or it can be done later by the life settlement company you choose. But having this documentation ahead of time makes the rest of the process easier.

Compare life settlement companies

Once you know what your policy is worth, it is time to take a look at companies. Research a few different life settlement companies and check their ratings with the better business bureau and other independent business rating organizations. The best companies are those with strong financial ratings and fewer than average customer complaints.

Contact life settlement companies

After you select your preferred company, contact one of their agents by email or phone and inform them that you would like to sell your life insurance policy. At this point, they are going to want various documents and verifications from you. They will also need to confer with the agent who currently holds your policy. At this point, you can mostly sit back and relax until the sale is ready to be finalized.

Sign and collect

The life settlement company will arrange the sale of your policy and send you a check. Sign the paperwork to finalize the deal, say goodbye to your old life insurance policy and deposit your check.

Pros and cons of selling your life insurance policy

Depending on your situation, there can be several ups and downs to selling your life insurance policy. For example, while you will no longer have that life insurance policy, you will have some cash. Beyond that, it becomes a lot more situational. The table below lists the most significant pros and cons of selling your life insurance policy.

ProsCons
Cash payment for saleLoss of policy and coverage
No more premiumsSmaller sale price than policy death payout
Easy processMore of a process than not selling

How much to expect from selling your life insurance

In general, if you sell your policy, you can expect to get roughly four to eight times more than the cash surrender value of the same plan. Life settlement exchanges do not have preset prices. The price that potential investors offer and the price you are willing to accept will play a significant role in how much you make from your policy.

There are a few primary factors that will determine your policy’s value and what investors are willing to pay for it. These factors are the age of the insured individual, the size of the premium payments on the policy, the number of expected premium payments remaining on the plan and the size of the policy payout. The older the insured, the more premiums that have been paid, and the larger the payout, the more you can expect to make from selling your life insurance policy.

Who should sell their life insurance policy

Whether or not selling your life insurance policy is a good idea will depend on your circumstances. In general, though, people who should sell their insurance policy are those who no longer have need of it or those for whom maintaining the plan has become a burden.

You might no longer require your policy if your beneficiaries have become so financially secure that they no longer need the help that a life insurance payout would provide. Another scenario is when people encounter a better life insurance policy offer, although this can get tricky. If you no longer need your current policy, selling it will provide you with cash and take the plan off your plate.

Your life insurance policy might become an unwanted burden if the premiums begin rising while your income drops. Even with fixed rates, a loss of income or the addition of other expenses can make a life insurance policy one bill too many. Being unable to afford your life insurance policy is one of the better reasons to sell it. This sale provides some cash in the short term while removing a recurring expense.

The takeaway

  • Selling your life insurance policy can be a viable option.
  • Selling a life insurance policy generally provides around four to eight times the policy’s cash surrender value.
  • People should consider selling their plan if they no longer need it or can no longer afford it.
  • Life settlement companies exist to facilitate the sales and procurement of life insurance policies.

Before you sell your life insurance policy, make sure that this is the best choice for you. Once you sell it, you lose all access to it. The two best times to sell are if the policy premiums are putting you in financial peril or if your life has changed in such a way that you no longer need the policy. If neither of these situations applies to you, then it might be best to hold onto that policy.

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