Sometimes you may need to sell your life insurance policy to get cash. A life insurance policy is an item of personal property. You can sell it just like any other property, however, there are special regulations.
If you are terminally ill, you can sell your life insurance policy to a life insurance settlement provider. To do this, your doctor must certify that you have two years or less to live. You do not have to pay taxes on the proceeds of a life insurance settlement.
You may also want to sell your policy if you outlive your retirement savings and need to pay living expenses. You will probably have to pay taxes on the money you make from the sale.
How much money can I sell the policy for?
The life insurance settlement provider pays a percentage of the policy’s death benefit. For example, a settlement provider might pay $75,000 for a life insurance policy that will pay $150,000 when the insured dies. Sales amounts typically range from 10 percent to 75 percent of a policy’s death benefit.
Prices vary, so talk to several settlement providers. Settlement providers generally consider the following factors when determining how much to pay for a policy:
- Your life expectancy. Settlement providers will pay more for policies if you have a shorter life expectancy. Most settlement providers will not purchase a policy unless you are 65 or terminally ill.
- Insurance premiums on your policy. Settlement providers assume all future payment obligations for policy insurance premiums, so they will pay more for policies with lower insurance premiums.
Proceeds from a life insurance settlement could affect your eligibility for Medicaid or other government programs. The income may not be exempt from bankruptcy proceedings or creditors. Before entering into a life insurance settlement, consult an attorney or financial advisor.
Life insurance settlement providers and brokers must register with us. For a list of registered life insurance brokers and settlement providers, call our Consumer Help Line.
Are there other alternatives to obtain money for my policy?
- If your policy has a cash value, you may be able to withdraw the cash. When you cash in a policy, you cancel it and get the money that has built up in cash value.
- Many lenders can offer you loans using your policy as collateral. If you don’t repay the loan, your death benefit amount will be reduced.
- A policy with a provision to accelerate death benefits will prepay all or part of the death benefit before you die. You must have a terminal illness, a specific illness, or an illness that requires long-term care.
