If your life insurance is expensive because of some changes in your financial circumstances, you might consider surrendering the policy or switching to an affordable one. However, you might be curious if you can sell your life insurance policy as a whole.
You can sell your life insurance policy if it’s a way to raise money if it is no longer needed. A secondary market is made for policyholders to trade life insurance policies for cash from a life settlement provider. Life settlement providers like Coventry or Abacus Life Settlements purchase life insurance policies from policyholders.
The life settlement company pays you a percentage of the value of your policy when you sell it. The life settlement company takes care of all future payments and gets the death benefit when you pass away. This article will assist you in determining if it’s a good choice to sell your life insurance policy.
How does Selling your Life Insurance Policy Affect Your Taxes?
Like selling any other large asset, selling your life insurance may have tax ramifications. You will be responsible for paying taxes on the amount of your proceeds from the sale of a life insurance policy that exceeds your policy contributions.
Depending on the duration of the insurance policy, your tax obligation may change. Your profit is regarded as a short-term capital gain if you’ve owned the policy for one year or less, just like with other investments. The policy is seen as a long-term capital gain if you’ve owned it for more than a year. Long-term gains are taxed at more advantageous rates of 0%, 15%, or 20%, whereas short-term gains are taxed at your regular income tax rate.
How Much Can I Get for My Life Insurance Policy?
The amount you receive when you sell your life insurance policy is influenced by factors. These factors include life expectancy, policy face value, and buyers’s lifetime premium expectations. The offer is greater than your policy’s cash surrender value. However, it’s less than the death benefit your beneficiaries would get if you kept the policy in force until the day of your death. You may be obligated to pay income or capital gains tax on any income received from the life settlement exceeding the premiums paid.
How to Sell My Life Insurance Policy
To sell your life insurance policy, it’s essential to comprehend life settlement transactions and the corresponding laws. Consult with your state’s insurance authority for more details about the procedure, license requirements, and potential scams.
Additionally, make a decision determining using a broker. A certified life settlement representative can respond to your inquiries, represent your interests, obtain quotes, and manage the negotiation process. However, the broker will be responsible for their services. To avoid broker fees, you can also decide to compare and shop independently.
Whether you work with an expert or not, the procedure will need these basic steps:
Application
To request offers from each life insurance settlement, you must fill out an application. You must give the settlement company permission to gather details about your health and policy as part of the application process. Additionally, disclosures might be made to you, and you might be asked for more details or supporting documentation.
Documentation
The underwriters of the settlement company will start obtaining information as soon as your application is received and the required permissions are granted. They will get in touch with your life insurance company to ask for specifics regarding your policy, such as the premiums and death benefit. A copy of your medical records from your healthcare providers will also be requested by the underwriters.
Appraisal
Underwriters will assess the pertinent data and determine the market value of your life insurance policy. The underwriters will evaluate your policy’s worth and the advice of medical professionals regarding your health to determine if it is a wise investment. They will search for indications of fraud as well.
Offer
The settlement company will make you an offer if they decide your policy is a good fit to buy. You have the option to accept or reject the offer. Before deciding on a choice, compare offers from several businesses. You might be better at negotiating if you worked with a broker.
Closing
The settlement provider will send you a closing package to review and sign if you accept the offer. The transaction will be reported to your insurance provider once you return the signed paperwork. The policy will no longer belong to you, and you will get the settlement money.
The life insurance process typically takes 60-120 days, depending on the speed of information requests from insurance companies and medical providers. Furthermore, cooperation between policy owners and the insured is crucial, with policy information and medical records accessible to both parties.
What to Know Before You Sell Your Life Insurance Policy
You can get a reasonable life settlement, but before you sell your life insurance policy for cash, consider the following:
Do I still require the insurance? You should keep the policy if you have beneficiaries who depend on you financially and you can afford the premiums.
Is there another way I can pay for my insurance? There are options, such as borrowing against your policy or lowering your death benefit in exchange for cheaper premiums, if your life insurance costs become too high.
Can I rely on the buyer and broker? Find an insurance department-licensed broker in your state and find out how much of your data the buyer will have access to. Furthermore, avoid working with a broker or buyer that pressures you to decide.
You have the option to sell your life insurance policy, but doing so is debatable due to possible financial and legal ramifications. Before selling, consider adjusting, converting, or replacing your policy to make it more financially viable. Certain kinds of life insurance even permit tax-free withdrawals from or borrowing against the policy’s cash value.