Selling Your Term Life Insurance: What You Need to Know

 If you’re like many Americans holding a term life insurance policy, you may not realize that your policy could be a valuable financial asset. While most people purchase term life insurance to protect their loved ones, some later discover they no longer need the coverage or can no longer afford the premiums. In such cases, selling your term life insurance may be a practical and beneficial option.

What Does Selling a Term Life Policy Mean?

Selling your term life insurance, also known as a life settlement, is the process of transferring ownership of your policy to a third party, typically an investor. In exchange, you receive a cash payout that is more than the policy’s surrender value but less than the death benefit. After the sale, the investor becomes the new owner, pays the remaining premiums, and receives the death benefit when the insured passes away.

Can You Sell Any Term Life Policy?

Not all term life policies are eligible for sale. Generally, you must meet the following conditions:

• Age and Health: Most buyers are interested in policies from individuals aged 65 or older or those with serious health issues.

• Policy Size: Policies with a face value of at least $100,000 are more attractive to investors.

• Convertible Policies: Term policies that can be converted into permanent life insurance (like whole life) are much easier to sell because they carry long-term value.

Benefits of Selling Your Term Life Insurance

1. Immediate Cash Flow: Selling your policy can give you a lump sum of money you can use for medical bills, living expenses, debt repayment, or even travel and retirement plans.

2. No More Premium Payments: Once the policy is sold, you're no longer responsible for ongoing premiums.

3. Financial Relief: If your policy has become a financial burden or is no longer needed (e.g., your beneficiaries are now financially independent), a life settlement can relieve you of that obligation.

What’s the Process Like?

1. Evaluation: A life settlement broker or provider will assess your eligibility and the potential value of your policy.

2. Offers: Multiple offers may be presented based on your policy and health.

3. Acceptance and Transfer: Once you accept an offer, you’ll complete the paperwork to transfer ownership.

4. Payment: You’ll receive your lump-sum payment, and the new owner will take over the policy.

Potential Downsides to Consider

• Loss of Death Benefit: Your beneficiaries will no longer receive the death benefit.

• Tax Implications: The settlement amount may be subject to income tax.

• Impact on Government Benefits: If you're receiving Medicaid or other assistance, the payout may affect your eligibility.

Should You Sell Your Term Life Insurance?

Selling your term life insurance is a personal financial decision that requires careful consideration. If you no longer need the coverage, or you’re looking for ways to improve your financial situation, this option might make sense. However, always consult with a financial advisor or life settlement broker to fully understand your policy’s value and your options.