You have a lot of reasons to invest in a life insurance policy when you’re in your 20s, 30s, 40s, or even 50s. A life insurance policy is a safety net that lets you rest easy knowing that, even if the worst happens to you, your loved ones will stay afloat financially. But life insurance policies aren’t necessarily great deals forever. You may eventually start to worry about paying the premiums. You may also find that you simply don’t need a safety net anymore; maybe you’ve prepaid funeral expenses and are retired, meaning that your loved ones won’t lose any major source of income when you die. And as the years go by, you may also find that you need cash much more than you need an insurance policy. For instance, you might get sick and need money to cover medical bills (which can be very expensive, especially for the chronically and terminally ill).
All of this may lead you to consider an important option for those with an existing life insurance policy: a life settlement or (if you meet certain criteria) a viatical settlement. Under these sorts of agreements, individuals with life insurance policies are able to sell their policies for cash. That can be good for those without much use for a traditional life insurance payout and the need to deal with serious illnesses, high medical bills, and mounting debt.
So, you ask, how do I sell my life insurance policy? Here’s how it works.
Considering your options
First, you need to figure out whether you and your loved ones will be better off in the long term with a life insurance policy or a life settlement. Is selling your policy the right move? You probably have a general sense based on the variables laid out above: A terminal illness and overwhelming medical debt, for instance, make a viatical settlement a smart move in a lot of cases. You can also sell your policy to pay for long-term care in the future, depending on which sort of settlement you choose. Still, you should confirm your decision by sitting down with a financial adviser to review the details of your situation. Your adviser may help you see something that you would otherwise have missed. Plus, you’ll need to make your adviser or accountant aware of any settlement you end up with, because it could have tax implications.
Working with a broker
You’re not an expert in viatical settlements and life settlements, so be sure to seek out someone who is. Your path to selling your life insurance policy runs through a broker.
To be clear, you don’t have to use a broker: Most insurance providers are also buyers, so you could work directly with a provider. Still, using a broker is a good idea.
A broker will help you nail down tricky issues such as eligibility. He or she will know whether your circumstances will allow you to seek a viatical settlement instead of a life settlement (the former has some advantages over the latter, such as tax-exempt status, but it’s not available to everyone).
Your broker will then solicit multiple bids on your policy, looking for the best possible terms. Buyers will look at things like your life expectancy and the amount of the eventual insurance payout to determine how much they’ll bid.
Your broker will show you the best offer, and the final decision is yours to make. Choose to sell, and you can stop paying premiums (the buyer will take over). When you die, the buyer will get the payout. You, of course, will get cash immediately.
And that’s about it. After that, you just might have to confirm your status to the buyer once in a while. And with the cash that you gain, you could pay down bills and enjoy a more stable and more enjoyable life.