Your life insurance may have value beyond just the death benefit. Indeed, if you have a certain type of life insurance policy, you may be able to sell it for money that you can use now. The transaction of selling your life insurance policy rather than having the death benefit paid out is known as life settlement.
A life settlement involves selling your policy for less than the death benefit but for more than the cash surrender value. A third party will purchase your policy for a lump sum payment. That buyer then becomes the owner and beneficiary of the policy. The buyer will pay the premiums moving forward and the seller will receive immediate cash for the policy.
If you are in financial need, speak with a trusted financial advisor about the pros and cons of selling your life insurance policy. The decision to do so may be advantageous for certain individuals. For others, it may not fit well with overall financial goals and plans for loved ones. The questions below can help you begin to determine if selling your life insurance policy is right for you.
Your answers to these questions can help you to begin ascertaining whether selling your policy is in your best interest. However, it’s always advisable that you consult a trusted financial advisor before making up your mind.
If you’re thinking of selling your policy to address current or future financial needs, you’ll need to be eligible. Those who are eligible to sell their life insurance policy often need to meet the following requirements:
Selling your life insurance policy may sound risky, but for many people, it proves advantageous. Benefits of selling a policy you no longer need or want include the following:
All financial decisions have some risk, and selling your life insurance is no different. Potential risks or disadvantages of selling your policy early include the following:
Consider a 74-year-old individual who has a $2 million term policy. The policy offers the option to convert (for a limited time) to a whole life policy. However, the policy owner no longer needs the policy, but if they allow it to lapse, they receive nothing after years of premium payments.
Instead, the policy owner opts to have his financial advisor negotiate a sale of the policy. The seller earns $600,000, and the buyer acquires all rights and ownership of the policy. The seller now has $600,000 for financial needs, or to invest as they wish. For this individual, selling the policy made sense.
Before making any significant financial decisions including those involving life insurance, be sure to consult your financial advisors. There are potential tax implications to all financial decisions, which you need to understand. Likewise, you’ll want to make sure that any financial decision you’re considering lines up with your overall financial goals and plans.
At Finley Davis, we are here to help you make financial decisions that are in your best interest and align with your overall goals. To schedule an appointment with Finley Davis, contact us today.