How Can I Sell My Term Life Insurance Policy?

A term life insurance policy provides coverage for a specific period, such as 10, 20, or 30 years, during which a death benefit is paid to beneficiaries if the insured passes away. Unlike permanent life insurance, term policies do not accumulate cash value. While these policies are designed for a defined duration, mechanisms allow policyholders to sell their policy for a cash payout. This option is considered when the policy’s original purpose changes or financial needs arise.

Understanding Life Settlements and Viatical Settlements

Two primary financial transactions facilitate the sale of a life insurance policy: life settlements and viatical settlements. A life settlement involves selling an existing life insurance policy to a third party for a cash sum. This payment is greater than the policy’s cash surrender value, if any, but less than its full death benefit. The buyer assumes responsibility for future premium payments and becomes the new beneficiary, receiving the death benefit upon the insured’s passing.

A viatical settlement is a type of life settlement for individuals who are terminally or chronically ill. The policyholder, often called the “viator,” sells their policy at a discount from its face value for immediate cash. Viatical settlements apply when the insured has a life expectancy of two years or less due to a terminal illness. Proceeds from viatical settlements are often not taxable, which can be an advantage for those facing severe health challenges.

The main difference between the two is the insured’s health status. Life settlements are for individuals who are older, often 65 or older, and may have a shortened life expectancy but are not necessarily terminally ill. Viatical settlements are for those with a terminal or chronic illness and a very short life expectancy. Both transactions involve selling the policy to a third-party investor who then pays future premiums and collects the death benefit.

Eligibility and Policy Requirements

To sell a term life policy, certain criteria for both the policyholder and the policy must be met. Policyholders are often at least 65 years old, though younger individuals with significant health impairments or a terminal illness may qualify. A decline in health since the policy’s issuance can enhance eligibility by impacting projected life expectancy. For viatical settlements, a diagnosis leading to a life expectancy of two years or less is common.

The policy’s characteristics also play a role. A policy often needs a face value of $100,000 or more. While traditional term life policies do not build cash value, convertible term policies may qualify if they can be converted into a permanent policy. This conversion option allows the policy to gain lasting value that investors seek, making it a viable path for selling a term policy. The policy should also have been in force for at least two years, though some states may require up to five years. These factors influence the investment’s profitability, considering the duration buyers might pay premiums versus the eventual death benefit.

The Process of Selling Your Policy

Selling a term life insurance policy begins with an initial inquiry to a licensed life settlement broker or provider. A life settlement broker acts as an intermediary, representing the policyholder’s interests and shopping the policy to multiple buyers for competitive offers. This step helps determine if the policy qualifies and provides an estimated value.

After the initial assessment, the next step involves providing necessary documentation. This includes policy details, medical records, and authorization for the release of personal health information. Medical information is used by an independent third-party expert to estimate the insured’s life expectancy, a factor in the policy’s valuation. Buyers then use this information to conduct their own underwriting and generate offers.

Upon receiving offers, the policyholder reviews them, often with guidance from their broker or financial advisor. Once an offer is accepted, the transaction moves to closing. This involves signing legal documents, including a contract, change of ownership forms, and change of beneficiary forms. An escrow agent holds the funds until the transfer of ownership and beneficiary designation are officially recorded by the insurance company. After the transfer is complete and funds are released, the buyer assumes responsibility for all future premium payments and receives the death benefit when the insured passes away.

Factors Influencing Your Policy’s Value

The cash value a policyholder receives from selling their term life policy is determined by several variables. The insured’s life expectancy is a primary factor; a shorter life expectancy leads to a higher offer because the buyer anticipates receiving the death benefit sooner and will pay premiums for a shorter duration. Life expectancy is assessed based on age, health status, lifestyle, and medical history.

The policy’s face value also influences the settlement amount. Policies with larger death benefits are more attractive to buyers and command higher offers. The amount and schedule of future premium payments are another consideration; lower future premiums for the buyer result in a higher settlement offer.

The type of policy and its convertibility are important, especially for term life insurance. While non-convertible term policies are less valuable, a convertible term policy can be attractive. Buyers may convert it to a permanent policy, which guarantees the death benefit, increasing its appeal and value. Broader economic conditions, such as current interest rates, can also influence offers, as they affect the buyer’s return on investment. Competition among multiple bidders in the life settlement market can drive up offers, as providers compete to acquire policies.