No longer need your life insurance policy? Sale.

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You signed up for life insurance in an effort to provide a blanket of financial security for your loved ones after your death, but what if you don’t need it or simply can’t afford it anymore?

Did you know that it can be turned into cash while you are still alive to get you out of a financial crisis? You can even use it to build supplemental income for your golden years.

That’s right. You can sell your life insurance policy like any other private property. This transaction is called a lifetime settlement.

Perhaps you need the cash to cover a major (and unexpected) expense, or you simply want to get rid of your monthly premium payment. Often, a living arrangement is the only lifeline for many seniors who struggle to cover heaps of medical bills after they become critically ill or need long-term care in retirement.

Those unaware of this option end up selling their cars or homes or accumulating huge debts while paying for care, not knowing that their insurance policy can earn the same amount (or more) of money than the value of their vehicle or total equity in your property.

If you ever think of going down the same path, please don’t. Selling your life insurance policy to an individual or entity may be a smart move, depending on your unique circumstances. Knowing how to sell it and determining if it’s even the right move for you is critical to your financial future.

Related: Life Insurance: What to Consider as a Business Owner

Understanding life settlement: what is it and how does it work?

A life settlement is when you sell your life insurance policy to a third party for a lump sum that is less than the net death benefit but more than the cash surrender value.

Sellers usually receive a fixed amount, and subsequently the buyer assumes responsibility for the policy, paying premiums and receiving the full death benefit when the policyholder dies.

As a policy owner, you can enjoy many benefits of a lifetime agreement. Some of them include the following:

  • It provides you with an immediate source of cash that you can use for any purpose, from paying down debt to financing a business venture and covering important expenses that may have come up unexpectedly.
  • You no longer need to keep track of premiums that must be paid to the life insurance company.
  • You no longer have to worry about saving up to pay premiums if you can no longer afford the policy and don’t want it to expire.
  • You can use the lump sum to build a retirement fund or supplement your retirement income by purchasing an annuity.
  • You can set aside the money to pay for long term care needs as they arise.

A life agreement is also an attractive option for those who have a policy with a high cash redemption value but do not need the death benefit. For example, you may have purchased a life insurance policy to secure the financial future of your spouse or children who are no longer dependent on you. With them becoming financially independent, the policy may no longer be needed.

The same goes for seniors who may have purchased a policy when they were in good health but now, with their health deteriorating, may be struggling to pay premiums. A living arrangement can help them eliminate this burden and improve their quality of health and life.

Related: Why Life Insurance Should Be Part of Your Wealth Building Plan

Eligibility requirements for a living agreement

Generally, you must be 65 or older and your policy must have a minimum face value of $100,000 to qualify for a lifetime agreement. This is because investors would not want to pay premiums on a policy for you if you could continue to live for decades.

Also, many states require you to wait at least a few years after a life insurance policy is issued before you can sell it. In some states, the waiting period is five years.

Are there any downsides to a living arrangement?

The only downside to a life agreement is that you will no longer have life insurance coverage. But if your family’s financial future is secure and you don’t need the policy, there’s nothing to lose in a life settlement transaction.

Ready to make the big decision?

If you need the cash or want to get rid of premiums, life deals are a great decision.

You should carefully evaluate your circumstances and consider all the benefits and drawbacks of selling a life insurance policy before making your final decision. Also, make sure you fully understand the laws in your state regarding life settlements to avoid getting in trouble.

If you feel that a life settlement is the best way forward for you, contact a life settlement broker or financial advisor to discuss your options. It really helps to research before closing the deal, because some companies tend to make less profitable deals. A professional can help you secure a fair price for your policy.

Once a suitable prospect has been found, you and the buyer will have to sign a contract outlining the terms of the sale. As soon as the contract is signed, you will receive the agreed amount at once from the buyer.

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