Selling Your Life Insurance Policy

Selling your life insurance policy that you no longer need or want to a 3rd party for immediate cash is known as a life settlement. A life settlement can be an attractive option for a seemingly useless policy, as you may receive a large sum of cash in exchange for your life insurance policy while you are still alive. The 3rd party is then responsible for all premium payments and becomes the beneficiary when you die.

Life settlements grew out of viatical settlements which gained popularity in the late 1980's when the AIDS epidemic first hit. Viatical settlements differ in that the policyholder is terminally ill. In life settlements the policyholder has just had a decline in health, such as a heart condition.

Some of the reasons for considering a life settlement are that the premiums are no longer affordable, policy is about to lapse, considering surrender of the policy or it's no longer needed or wanted, because retirement age has been reached, the mortgage is paid off and you are debt free. However, there are alternatives to explore which may better suit your particular situation. You could borrow against the cash value of the policy, cash out based on available cash surrender value, check to see if premiums can be lowered by reducing the death benefit or use the policy as collateral to secure a loan. Insurance companies urge customers to examine all options before making a decision.

Furthermore, not all policies will be eligible for sale. Investment companies that purchase life insurance policies look at many factors. Two of the main factors are the amount of the death benefit (usually no less than $250,000) and the health of the insured. Other things they consider are age of the insured, type of policy(whole, term, universal), rating of issuing insurance company and the amount of the premiums necessary to keep the policy in force. Obviously they are in it to make a profit, so many factors will be considered before they decide if buying the policy is a good investment, and if so what amount to offer for the policy.

If you do decide that the life settlement is the best avenue for you, you should contact several life settlement companies to obtain the best offer. It would be wise to contact your state's insurance regulatory agency to be sure the company is licensed and reputable and learn all you can about the company, including their privacy policy. If possible you should discuss your decision with trusted family members or friends, your financial advisor or legal advisor. It is also good idea to contact your tax advisor, as the proceeds from a life settlement may be taxable.