If you’re in a dire situation that requires cash you don’t have on hand, selling your term life insurance policy could give you some relief. Many people sell these policies to pay for unexpected medical bills, long-term care, or other financial emergencies. But not every term life policy can be sold. And for the ones you can sell, there is a process involved that is not as simple as just cashing it in.
What is term life insurance?
Term life insurance policies are temporary policies that pay the recipient’s beneficiaries a set amount of money should the person die prematurely. Many people buy these policies as they provide the most coverage for the lowest amount of money. You can commonly buy them in 10, 20, or 30-year terms, and once that term expires, the policy has to be converted or renewed in order to maintain coverage.
Term life policies do not technically have any cash value because they are considered temporary. Of course, that’s what makes them so affordable. But many younger people buy them to protect their families while they build up savings and other assets.
What policies can be sold?
The only way to sell a term life policy is if you can first convert it to a permanent — or whole — life policy. These policies have actual cash value that others can benefit from. Once it’s converted, you can request an offer from a life settlement provider. These providers base their offers on a policy-holder’s health, age, type of insurance, payout, and premium amount. And they typically require that policy-holder to be at least 65 years of age. Additionally, most require the policy to be worth at least $250,000, but some will accept them at $100,000.
How do I convert my life insurance?
Many life insurance policies offer a conversion rider when you first purchase them, but every company handles this a little differently. Usually, they put an age-limit on conversions. For example, you may only be able to convert your policy once you’re at the age of 70. But these stipulations are laid out when you first make your purchase, so make sure you ask for this rider from the very beginning.
How does a life insurance settlement work?
Third-party offers for life insurance are usually paid out in settlements, and the average payout is about 22 percent of the policy’s face value. But this percentage can range from 10 percent to 50 percent, depending on certain factors. For example, they might be willing to pay more for an 84-year-old’s policy than a 60-year-old’s because their life expectancy is a little shorter.
When an individual elects to sell their policy to companies like Sell My Life Insurance, you make them your beneficiary. They would, in exchange, give you cash for the policy based on an agreed-upon amount. Then, they would collect the insurance proceeds at the time of the individual’s death.
Should you sell a term life policy?
The decision to sell your life insurance is a very personal one and depends on several factors, but if you’re in a financial bind, it might be a good idea. It’s certainly advisable if you’re unable to make the payments and are considering letting it lapse. If your term life insurance lapses, you’ll no longer have any coverage at all. So, it’s better to convert your policy and sell it so you can at least recoup some of the cash you’ve put into it. Many people even sell these when they’re in a bind and then purchase another policy as soon as they’re able to. That way, they can cover some expenses now, but still protect their families in the future.