Life insurance can be a critical financial tool for protecting your loved ones. However, you may one day decide you no longer need the coverage and want to stop paying premiums. You don’t need to let the policy lapse and lose all those premiums, though. Instead, you can sell your life insurance policy to someone else. This article will explain the process of selling your life insurance policy to get some of your money back.
How to sell your life insurance policy
Selling your life insurance policy, sometimes called a life settlement, is different from surrendering. If you surrender a permanent life insurance policy, you return the policy to the insurer and receive the cash value minus surrender charges. In this case, that policy is gone.
If you sell your policy, the buyer becomes the new owner of the policy. You get cash, and they begin paying your premiums. However, they also become the beneficiary. The buyer receives the death benefit if you pass away while the policy is in force. With that in mind, here’s how to sell your policy:
1. Hire an advisor
Calculating your policy’s value can be challenging, but you want to ensure you get the most out of selling it. Hiring an independent advisor may be a good idea. They could provide an expert appraisal of your policy to ensure you don’t underprice and lose out on money or overprice and never sell the policy.
2. Find a good broker
The broker facilitates the actual transaction. They can help ensure you get the best possible price by putting your policy in front of more potential buyers. Make sure any broker you choose is reputable and licensed. Look over their fee structure as well — fees could consume a significant amount of your potential sales proceeds depending on the broker.
3. Provide the right information
Expect to answer some questions about your health. The broker will use this information to evaluate your life expectancy and estimate what kind of price they can offer for the policy. For example, a policy will be more valuable if you have a health condition or are older.
4. Receive and negotiate offers
Once the underwriting process is complete, the broker will help find buyers. Then, you can negotiate or reject offers until you get one that fits what you want.
5. Sign over the policy and get paid
When you get an offer you want, you’ll transfer the policy over to the buyer. In exchange, they’ll pay you a lump sum for the policy and take over your premiums.
The bottom line
Selling your life insurance policy may be worthwhile for some people if they have no beneficiaries or can no longer afford it. Letting the policy lapse means losing money, so people in this situation may benefit from selling it.
However, selling the policy is generally not a good idea for many who want to provide financial security to their beneficiaries. If paying for the policy is a struggle but you need the coverage, you may consider potential alternatives including paying premiums with cash value or replacing it with a lower-premium policy. Ultimately, the best way to get the coverage you need while staying within your budget is to get multiple quotes, whether you’re getting a new policy or hoping to replace an existing one.