It’s a question more people are asking than you might think — should I sell my life insurance policy? For many policyholders, there comes a time when the original reasons for buying coverage no longer apply. Maybe the kids are grown, the mortgage is paid off, or the monthly premiums have simply become a burden. Whatever the situation, it’s completely reasonable to explore your options.
What some people don’t realize is that a life insurance policy isn’t just a safeguard for loved ones — it can also be a financial asset. In certain cases, selling your policy, also known as a life settlement, can provide access to cash you can use today. Whether it’s to help cover retirement expenses, medical bills, or to enjoy new experiences, the proceeds from selling a policy can offer added flexibility and peace of mind.
Of course, this decision shouldn’t be taken lightly. In this guide, we’ll walk you through the key pros and cons of selling a life insurance policy and the important factors to weigh before making your choice. Our goal is to provide clear, unbiased information so you can feel empowered to make the decision that’s right for you.
Key Takeaways
- Selling a life insurance policy through a life settlement provides a cash payout while you’re still living. It’s an option for those who no longer need or can afford their coverage and want to access its value.
- It often makes sense to sell if premiums have become unaffordable, your financial priorities have changed, or your policy no longer serves its original purpose — like providing for dependents or covering debts.
- There are benefits and trade-offs to consider. You gain immediate funds but give up the policy’s future death benefit. OvidLife offers free quotes and expert guidance to help you understand if your policy qualifies and how much it could be worth.
What Does It Mean to Sell Your Life Insurance Policy?
Selling your life insurance policy, known as a life settlement, involves transferring ownership of your policy to a third party in exchange for a lump-sum cash payment. This amount is typically higher than the policy’s cash surrender value but less than the full death benefit.
The buyer, often an institutional investor, takes over the policy, becomes the beneficiary, and continues paying the premiums. When the insured person passes away, the buyer receives the death benefit. It’s important to differentiate this from a viatical settlement, which is similar but applies specifically to individuals with a terminal illness.
For the policyholder, a life settlement means receiving immediate cash and no longer being responsible for ongoing premium payments. It can be a strategic financial decision for those who no longer need their coverage or are looking for ways to access funds.
When Does It Make Sense to Sell a Life Insurance Policy?
Selling a life insurance policy isn’t right for everyone, but under the right circumstances, it can be a smart financial move. In this section, we’ll explore common reasons people choose to sell and who typically qualifies for a life settlement.
Not everyone will benefit from selling, but for the right candidate, it can unlock real value. The following sections will help you assess your situation, understand eligibility requirements, and decide if pursuing a life settlement aligns with your financial needs.
Common Reasons People Sell
There are several practical reasons why policyholders consider selling their life insurance policies. One of the most common is the rising cost of premiums. As individuals age or experience health changes, maintaining a life insurance policy can become increasingly expensive, making it difficult to justify the ongoing payments. Others find that the original purpose of their policy no longer applies — for example, their children may be grown, their mortgage paid off, or their financial situation has improved, reducing the need for life insurance protection. Some may need immediate access to funds to cover medical expenses, long-term care, or unexpected debt, making a life settlement an attractive option. Additionally, for those considering surrendering their policy or letting it lapse entirely, selling the policy often provides a much better financial return.
Ideal Candidates for Selling
While not everyone will qualify for or benefit from selling their life insurance policy, there are some general guidelines for ideal candidates. Typically, individuals aged 65 or older are most likely to qualify for a life settlement, as age is a significant factor in determining a policy’s market value. However, younger individuals facing serious health issues may also be eligible. Policies with a death benefit of $100,000 or more tend to attract buyers, and certain types of policies—such as whole life, universal life, and convertible term policies—are often considered for life settlements. In addition to age and health status, factors like the size of the premiums and the length of time the policy has been active will also influence how much a policyholder might be offered. If you meet these criteria, exploring a life settlement may be a worthwhile option.
Benefits of Selling Your Life Insurance Policy
For the right candidate, selling a life insurance policy can provide significant financial advantages. The most immediate benefit is access to a lump sum of cash that can be used for virtually any purpose — from paying for medical care or in-home assistance to supplementing retirement income or eliminating debt. In many cases, the amount received from selling a policy is substantially higher than the cash surrender value offered by the insurance company. Selling also relieves policyholders of the obligation to continue paying costly premiums, providing peace of mind and freeing up their monthly budget. Even individuals who are not currently facing financial hardship may choose to sell simply for greater financial flexibility and control over their assets.
Risks and Considerations Before Selling
Although a life settlement can be a smart financial decision for some, it’s important to carefully consider the potential risks. Selling your policy means that your beneficiaries will no longer receive the death benefit when you pass away, which could impact your estate planning or your family’s financial security. Additionally, the proceeds from the sale may be subject to taxes, reducing the amount you ultimately take home. A life settlement can also affect your eligibility for needs-based government programs, such as Medicaid, which could have long-term implications for your healthcare coverage. Beyond the financial factors, there’s also an emotional element to consider, as life insurance is often intended to provide peace of mind for loved ones. For these reasons, it’s always wise to consult a trusted financial advisor and work with a licensed life settlement provider to explore your options and make an informed decision.
How to Decide If Selling Is Right for You
Deciding whether to sell your life insurance policy is a deeply personal choice that requires careful reflection on your current financial situation and future needs. It’s important to take a step back and review all your options before making any decisions. This section is designed to help guide you through that process by providing a self-assessment checklist to evaluate your unique circumstances. You’ll also learn about alternatives to selling that might better align with your long-term goals, ensuring you make an informed decision that fits your financial plan and peace of mind.
Questions to Ask Yourself
Before moving forward, consider these key questions to determine if selling your life insurance policy could be the right step for you. Do you still need this coverage to protect your dependents or meet other financial obligations? Are the premiums becoming a financial burden that’s hard to manage? Would you benefit more from having a lump sum of cash now rather than leaving the death benefit to your beneficiaries later? And finally, is your policy eligible for a life settlement, based on factors like age, health, and policy type? Answering these questions honestly will help clarify whether selling makes sense in your situation.
Alternatives to Selling
Selling isn’t the only available option if you’re facing challenges with your life insurance policy. You might consider converting your policy to a reduced paid-up insurance, which lowers your coverage but eliminates premium payments. Taking out a policy loan can provide access to cash without giving up the policy entirely, although it may affect the death benefit. Another alternative is using an accelerated death benefit, which allows you to receive part of the policy’s value early in case of serious illness. Some people choose to donate or give their policy, offering potential tax benefits while supporting a charitable cause. Exploring these alternatives can provide solutions that better suit your needs without the trade-offs involved in selling.
Explore Your Options with Ovid
Before surrendering your policy or letting it lapse, you might be wondering, should I sell my life insurance policy? It’s wise to find out what it could be worth on the market. Ovid Life specializes in helping policyholders understand the value of their life insurance and whether a life settlement is a good fit based on their personal financial goals. By working with Ovid, you can receive a free, no-obligation quote that gives you clarity on your policy’s potential worth. Take control of your financial future—get a free quote today and explore how selling your policy with Ovid might provide you with valuable cash when you need it most.
Frequently Asked Questions
How do I know if I qualify to sell my policy?
You typically qualify if you are age 65 or older, have a policy with a face value of $100,000 or more, and hold certain types of policies like whole life, universal plan, or convertible term. Your health and premium payments also play a role in eligibility.
How much money can I get from selling my life insurance policy?
The amount you receive is usually more than the policy’s cash surrender value but less than the full death benefit. The exact offer depends on factors like your age, health, and the type of policy you own.
Is selling my policy better than surrendering it?
Selling your policy through a life settlement generally provides a higher payout than surrendering it for the cash value, making it a more financially beneficial option in many cases.
Will I have to pay taxes on the money I receive?
Proceeds from selling your policy may be partially taxable depending on the policy’s cost basis and the size of the payout, so it’s important to consult a tax advisor.
What happens to my policy after I sell it?
Once sold, the buyer becomes the new owner and beneficiary of the policy and takes over paying the premium until the policy matures.
