Can I Sell My Term Life Insurance Policy?

Life insurance serves as a financial safety net, providing a death benefit to beneficiaries upon the insured’s passing. Among the various types, term life policies are chosen for their affordability and straightforward nature, offering coverage for a specific period. Many policyholders wonder if they can sell their term life insurance policy if their needs or financial circumstances change. This article explores the viability of selling term life policies and the options available.

Understanding Term Life Insurance

Term life insurance provides coverage for a defined period, commonly ranging from 10 to 30 years, designed for temporary financial needs. Policyholders pay regular premiums, and if the insured dies within the specified term, a death benefit is paid to designated beneficiaries. This policy type is often selected to cover financial obligations with a clear end date, such as a mortgage or the years until children become financially independent.

Unlike permanent policies that build cash value, term life insurance does not, focusing purely on protection for the chosen period. Premiums are generally fixed for the duration of the term, offering predictability in cost. If the insured outlives the term, coverage expires, and no death benefit is paid or premiums refunded, unless a return of premium rider is included.

Selling a Term Life Insurance Policy

The direct sale of a pure term life insurance policy to a third party is generally not possible, primarily because these policies lack a cash value component. Policies with cash value, such as whole life or universal life, can be sold in a secondary market through life settlements. A life settlement involves selling an existing life insurance policy to a third party for a lump sum payment.

While a pure term policy itself cannot be directly sold, a significant exception exists for convertible term policies. Many term life insurance policies include a conversion option, allowing the policyholder to convert it into a permanent life insurance policy without a new medical examination. Once converted, the policy possesses cash value and longer coverage, making it potentially eligible for a life settlement. The conversion process is often time-limited, and the new permanent policy will have higher premiums.

For a converted policy to qualify for a life settlement, specific criteria apply. The insured typically requires being at least 65 years old, or younger with significant health impairments. The policy usually needs a face value of $100,000 or more, and a shorter life expectancy for the insured makes it more attractive to buyers. Even some non-convertible term policies might be considered for a life settlement if the insured has a life-limiting health condition. The sale process involves transferring ownership and beneficiary rights to the buyer, who then assumes responsibility for future premium payments.

Options for Your Term Life Policy

If your needs or financial situation change, and selling your term life policy directly is not viable, several other options are available. One straightforward approach is to simply let the policy lapse. This occurs when you stop paying premiums, and after a grace period, the coverage terminates. When a term policy lapses, no death benefit will be paid if the insured dies afterward, and any premiums paid up to that point are not recoverable.

Another option, if your policy includes it, is the conversion privilege. This allows you to transform your term policy into a permanent life insurance policy without a new medical exam. This conversion provides lifelong coverage and introduces a cash value component that grows over time. While converted policies come with higher premiums, they offer permanent coverage and the potential to access the cash value through loans or withdrawals.

Many term life policies also offer accelerated death benefit riders, which allow access to a portion of the death benefit while the insured is still alive. These riders are typically activated in cases of terminal illness, chronic illness, or other defined health conditions. The funds received can be used for medical expenses or care costs, but they reduce the amount paid to beneficiaries upon the insured’s death. Consult a financial advisor or your insurance provider to understand your policy’s specific terms and evaluate the most suitable course of action.