You Can Sell Your Life Insurance Policy But Should You?

A life insurance policy is your personal property. That means you can sell it like any other asset. But should you?

Here’s everything you need to know.

What Is a Life Settlement?

Selling your life insurance policy to a third party is known as a life settlement.

It’s an option for older adults who no longer need their life insurance policy or who can no longer afford the policy’s monthly premiums.

As you might have guessed, there’s a catch. A few actually.

Transaction costs can be high and your heirs won’t receive any money from the policy when you die. You’ll never receive the full death benefit amount when you sell your policy either.

Still, for seniors on fixed incomes, pursuing a life settlement can create much-needed cash flow in retirement.

How Do Life Settlements Work?

When you sell an existing life insurance policy to a third party in exchange for an immediate lump-sum payment, the third party buyer becomes the new owner and continues to pay premiums.

They also receive the policy’s death benefit when you die.

As the seller, you typically receive more than the cash surrender value of the policy but much less than the death benefit amount.

Who Can Sell a Life Insurance Policy?

Life settlements are targeted toward older adults with high-value life insurance policies.

You’ll need at least a $100,000 policy and be at least 65 or 70 years old to sell your policy.

Younger people with a chronic or terminal illness may also qualify to sell their policy.

Universal life — a type of permanent life insurance policy — is most desirable for buyers, though term life and whole life policies can also be sold.

You also generally need to own your policy for at least two years before you can sell it. Some states have longer waiting periods.

Selling life insurance policies isn’t as common as you might think. Only about 3,000 policies were sold on the secondary market in 2021, according to the Life Insurance Settlement Association.

How…