Are you over 65 with a life insurance policy you no longer need or want? Like any other asset, it can be sold for cash in the secondary market.
Life insurance policyholders continue to let policies lapse without obtaining all the information about its current value. Turn Your Unwanted Life Insurance Policy Into Cash before lapsing or surrendering the policy.
Even term policies have value but most policyholders are not aware how easy it is to obtain the value. The value is expressed as a percentage of the policy’s face amount. If you could sell an unwanted $1,000,000 policy for 5 percent, or $50,000, you might consider it before letting it lapse. A $3,000,000 policy could fetch $150,000, or more.
Term policies also have secondary market value but most policyholders are unaware of what this means.
Known as a life settlement, you will be converting your policy to cash through a sale to an interested buyer. This is no different than selling any other asset when it is no longer needed or wanted. The policy is appraised along with your medical records and an offer is then made to the owner, if they determine there is value. Sometimes, no offer is made, depending on the outcome of these appraisals. Some people are too young and healthy. Others have a policy that is not attractive to buyers. Other times, the market favors buyers, not sellers.
Working with a broker creates great value to the seller. Some buyers are attempting to go direct to sellers. You may see their ads on TV, or online. It is certainly one approach but is it optimal? Why deal with one buyer when there are dozens, if not more?
A life insurance professional with secondary market experience will represent the owner by bringing the policy to the entire market. By putting buyers in a competitive situation, the offers will increase. The U.S. market is robust and you want your agent to have access to all sellers.
Offers are typically quantified as a percentage of the policy’s face amount. For example, a $2,000,000 policy worth 9% would equal $180,000 for the seller. There may be some income taxes to consider on these sales (each sale is different) and that is easy information to obtain. After the policy is sold to the new owner, future premium payments are theirs.
Should you sell your policy? It pays to speak with a professional working solely in your best interest. Your interests and the broker’s interests should be in perfect alignment with the goal being to get maximum value for the policy. Before selling a policy, you may want to speak with your spouse, other advisors and your heirs. This information about a life settlement transaction may help.
Interested but unsure? The best way forward is to find out if your policy has value. There is no obligation to obtain its value or to get bids.
To determine a policy’s value, potential buyers need the following information:
- Policy projections including the premiums to keep the policy in-force to various ages.
- The type of policy and its terms. Some policies have no value in the secondary market because of their terms.
- The life expectancy of the policy owner which is determined by an independent, 3rd party analyst. No medical is necessary.
- A detailed history and understanding of the policy owner’s current and past health.
With this information, you can get a valuation. Typically, there is minimal value for policies owned by healthy people under the age of 70. If there are health considerations leading to a shorter life expectancy, that may change the numbers in your favor. I recently helped a 73 year old man sell a $3,000,000 policy he purchased in his late 40’s. Because of previous medical history, he received several offers. He sold the policy for 16% of face value, or a little bit more than $450,000.
There is no downside in finding out the secondary market value of any policy you may be considering lapsing or surrendering.
Life insurance is an important asset to your beneficiaries and I urge everyone to consider keeping it whenever possible. There are many ways to retain a life insurance policy and you may want to consider them before selling the policy or letting it lapse. There are hybrid arrangements in which you give up a piece of the face value in exchange for having the future premiums paid.
Are term policies eligible for sale in a life settlement?
Yes. You should be age 65 or older with some decline in health since the policy was issued. Term policies are typically bought for a temporary insurance need, unlike permanent policies where the policy owner typically has a long duration or lifetime insurance need.
Are there special requirements for selling a term insurance policy?
Most life settlement buyers want term policies that are convertible to some form of permanent insurance. Therefore, being able to control future premium obligations through a conversion is usually ideal.
When does the conversion privilege on a term policy expire?
The answer varies among different policies even issued by the same company. Some limit the conversion period to a number of years; other companies may also impose a maximum age.
When should I begin the process if a conversion is involved?
A life settlement transaction requires getting medical records, in-force illustrations, life expectancy analyses, investor pricing and the closing. In addition, a term settlement usually includes issuance of the conversion policy. Because the entire process usually takes 3 to 4 months, you should get it started at least 4 to 6 months prior to the expiration of the conversion privilege.
Can I sell part of a term policy and keep part?
Insurance companies typically do not permit a permanent policy to be split for a life settlement. It is worth exploring if they will allow partial conversions. Then, it would be possible to sell only a portion of a term policy by doing a partial conversion as part of a life settlement transaction. The remaining policy can be kept as term insurance or be converted separately.
I offer an initial, complementary consultation in person or by phone. Please email me or fill out the contact form on this page and I will contact you shortly. You can call me direct at 561-869-4500.
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Also published on Medium.