Can I Sell my Term Life Insurance for Cash?

You may have heard that customers with permanent life insurance plans have various alternatives for cashing out their coverage.

One of these alternatives is to participate in a life settlement or viatical settlement. This technique enables policyholders to sell their life insurance to institutional investors for a lump amount of money that is less than the policy’s face value but more than its accrued cash value. It’s a safe, legal, and well-regulated procedure.

Typically, anyone over the age of 65 who possesses a life insurance policy with a face value greater than $100,000 and no longer wants or needs it may sell it. Many consumers want to know how much their life insurance policy is worth in a life settlement and call a broker to receive an estimate.

While most life insurance plans sold via a life settlement are universal, whole, or variable, you may sell a convertible-term life insurance policy for cash in specific situations.

Term life insurance fundamentals

Choosing to get term life insurance is a wise financial decision. It’s an excellent strategy to prepare for loved ones’ future financial requirements in the case of the policyholder’s unexpected death. Because cash value does not accumulate inside the policy, when you get term life insurance, you are really paying for just basic life insurance.

Annual premiums for term life insurance are much cheaper than for permanent life insurance. The younger and healthier you are, the cheaper your rates. Term life insurance is a common choice for folks with young children and those who wish to leave enough money to pay off their obligations but haven’t saved much yet.

People in their twenties, thirties, and forties have many years ahead of them to make money. They correctly think that they will not need life insurance in retirement since their children will be financially independent. By the time their term life insurance policy expires, they aim to have saved enough money to pay off any obligations and cover their own funeral and burial costs.

Term life insurance products provide excellent coverage in return for a low cost. Many term life insurance contracts are convertible, which means the policyholder may convert to a permanent policy without undergoing a medical exam. They will not have to go through the underwriting procedure again. The premium price increases at the conclusion of the contract are generally significant.

Many seniors who got term life insurance policies when they were younger realize that they need the financial protection that life insurance provides for their dependents, but switching to a permanent policy would make their premiums unaffordable. One alternative for seniors in excellent health is to start a new term life insurance and go through the medical and underwriting procedures.

What to do as your term life insurance nears its expiry date

In contrast to permanent life insurance, a term life insurance policy does not accumulate monetary value over time. Assuming the policyholder is still alive after the term expires, the insurance is terminated. The policyholder no longer has life insurance, and the insurance firm retains the premiums paid throughout the years for pure profit.

According to the Life Insurance Settlement Association (LISA), $112 billion in life insurance contracts expire each year. Less than half of all seniors in America are aware that they may sell their life insurance policy via a life settlement. 90% of seniors who have previously let a policy expire would consider a life settlement if they were aware of the opportunity.

Most term life insurance plans may be renewed for a much greater premium than the first-level term period’s set premium. In fact, if the policyholder is prepared to pay the increasing premiums each year, they may be protected for the policy’s full face value until the age of 95.

This may be a viable alternative for those who desire life insurance but are unable to get a new policy due to old age or a medical condition.

Certain term life insurance plans qualify for a life payout

Instead of letting a term life insurance policy expire or converting it to a costly permanent life insurance plan, seniors may receive cash by participating in a Term Life Settlement.

If the policy owner is over 65 or has seen a decrease in health since purchasing their converted term policy, and the policy’s face value exceeds $100,000, a term life settlement is likely a realistic alternative. Policyholders under 65 who have severe or fatal illnesses may also be eligible for a term life payout.

The two alternatives are to either let the insurance expire and have nothing to show for years of premium payments or to agree to pay increased premiums that might be 6–10 times the initial set price.

In a term life settlement, an institutional investor buys your converted life insurance policy and assumes the obligation to pay the increased premiums. When you die, your life insurance policy’s face value is transferred to the investor, who becomes the new beneficiary.

You get cash in exchange for your insurance. If you use a life settlement broker to identify an investor and negotiate the greatest possible price for your policy, you will pay them a predetermined fee.

In certain situations, the life settlement profits may be taxed. To further understand your possible tax burden, contact a tax specialist.