How to Sell a Life Insurance Policy | The Motley Fool
Life insurance can help protect the policyholder’s family members after their death, and sometimes even offers benefits for the living. But if the policyholder no longer wants or needs the coverage, he may wonder if he should sell the life insurance policy. In this article, we’ll take a look at how these life agreements work and for whom they make sense.
can a life insurance policy be sold?
Selling a life insurance policy to a third party is known as a life settlement. the amount the policyholder receives can sometimes be more than the insurance’s cash surrender value, but is usually much less than the policy’s death benefit.
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The policyholder hires a broker who helps them find a buyer. That buyer pays the policyholder a lump sum, and the broker takes a portion of that as payment. then the buyer continues to pay the policy premiums and receives the death benefit when the original policyholder dies.
how does the sale of a life insurance policy work
When selling your life insurance policy, here are the basic steps you will need to follow:
- find a broker: the policyholder shares information about their life and health insurance policy with one or more interested brokers to determine if their policy is salable.
- make the sale: the broker connects the policyholder with a new buyer who will take over the policy. the buyer pays the policyholder an agreed sum. the policyholder is absolved of all costs related to the account and the buyer makes the premium payments on his behalf.
- Receive the death benefit: When the policyholder dies, the death benefit goes to the purchaser instead of the original listed beneficiaries.
- Gather Important Documents: Brokers will want information about the policyholder’s life insurance policy and medical records to decide if they’re interested in working with them. Gathering this information right away can save time later.
- Look for reputable brokers: Interview more than one broker. Find out if the business is licensed in the state, how their commission structure works, and if there are any other costs to consider.
- Compare multiple offers: It’s a good idea to talk to multiple brokers before settling with any one. policyholders should see what each company has to offer and go with the one that is most comfortable for them.
how much cash could you get from a life settlement?
There are several factors that influence how much a person could get from a life insurance settlement, including:
Brokers generally like to work with policyholders who are at least 65 years old, as they are likely to die sooner than younger people. this means that buyers will be able to get a return on their investment sooner.
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People in poor health tend to get more money than people in good health. this is also because poor health indicates that the policyholder is likely to die sooner.
value of the policy
Brokers typically require policyholders hoping to sell a life insurance policy to have a death benefit of at least $100,000 to interest buyers. those with policies with higher coverage limits typically earn more than those with smaller policies.
financial security of the insurer
Buyers will pay more for insurance policies written by companies with stronger financial strength ratings from independent organizations, such as a.m. best or standard & poor this indicates that the company will be around for decades to come and is able to pay its obligations to policyholders.
should you sell your life insurance policy?
For those wondering “should I sell my life insurance policy?” here are some scenarios where it might make sense and some where it might not.
when a life agreement could make sense
A life settlement could be a good idea for people who no longer need life insurance because they no longer have dependents who depend on their income. those struggling to pay premiums and those in need of a lot of cash may also want to consider it. however, there are other alternatives that could help these people without some of the pitfalls of life settlements.
when a life agreement is a bad idea
Selling a life insurance policy isn’t easy, because buyers want to be pretty sure the policyholder will die soon enough to get paid. Younger policyholders and those in good health may have a hard time finding someone interested in working with them. there are better ways for these people to get out from under your life insurance policy.
pros and cons of selling your life insurance
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Here’s a look at some of the pros and cons of life settlements:
pros of life agreement
The benefits of selling a life insurance policy are obvious: the policyholder no longer has to worry about making premium payments. they also get a one-time payment that they can use for whatever they want.
cons of life agreements
Selling a life insurance policy can be complex and doesn’t always offer great benefits. Most people are paid much less than their death benefit, and brokers charge high commissions. On top of that, the policyholder may have to pay taxes on the life settlement amount, so they could lose some of it to the government.
how to sell a life insurance policy
If you plan to collect on your life insurance policy, follow these steps:
life settlement companies
Not all life settlement companies are legitimate, so it’s important to thoroughly research the company before agreeing to any deal. Policyholders should make sure they are licensed in the state and ask questions to learn how the company operates. policyholders should feel comfortable with the company they are working with before entering into a life agreement.
alternatives to selling your life insurance policy
If a life settlement doesn’t seem like a good option, one of these alternatives might be better:
- reduce the death benefit: some life insurers will allow policyholders to reduce their level of coverage to make their premiums more affordable.
- cancelling a term life policy: canceling a term life policy will not provide any benefit to the policyholder, but may relieve the policyholder of the obligation to pay the premium.
- claim accelerated death benefits: Some life insurance policies have an accelerated death benefit rider that allows policyholders to take advantage of part of the policy’s death benefit while they are still alive if they need it to cover health expenses. .
- Turn in the policy: Permanent life insurance often builds cash value. If the policyholder no longer wishes to maintain their coverage, they can cancel the policy and receive part of its cash value as payment. but there may be fees associated with this.
- take a loan: Some permanent life insurance policies allow policyholders to take a loan from a life insurance policy, which they can choose to pay back or not. if they don’t, your death benefit is reduced.
- Use cash value to lower premiums: Some life insurers also allow policyholders to use part of their cash value to offset the cost of rising premiums as they age.