How I Sold My Unwanted Life Insurance Policy for a Lump Sum of Cash.
My “Worthless” Policy Was a Hidden Asset.
I had a universal life policy that I’d bought years ago. I was now 72, the kids were grown, and I no longer needed it. I was about to surrender it to the insurance company for its small cash value of $15,000. My advisor told me to wait. He sent it to a life settlement broker, who shopped it around to multiple investors. A week later, I got an offer for $60,000 in cash. I was floored. A policy I was about to throw away was actually a hidden asset worth four times its surrender value.
The Critical Difference Between a Life Settlement (Old Age) and a Viatical Settlement (Terminal Illness).
It’s All About Life Expectancy.
Life settlements and viatical settlements are both ways to sell your life insurance policy for cash. The difference is your health. A life settlement is for seniors (typically 65+) who are not terminally ill but no longer want or need their policy. The payout is based on age and general health. A viatical settlement is specifically for individuals who have been diagnosed with a terminal illness (typically a life expectancy of 24 months or less). Because the investor expects to receive the death benefit sooner, the payout for a viatical is much higher.
“My Term Policy is About to Expire”: How a Life Settlement Can Turn It Into Cash.
Don’t Let Your Convertible Term Go to Waste.
My dad had a $1 million term policy that was about to expire. It had no cash value. He was going to let it lapse. But the policy had a conversion privilege, allowing him to convert it to a permanent policy without a health exam. A life settlement company offered him a deal: they gave him $50,000 in cash. In exchange, they paid the costs to convert the policy to permanent insurance, took over the premium payments, and became the new beneficiary. He turned an expiring, “worthless” policy into a significant cash windfall.
Is It Ethical? The Controversial World of Selling Your Life Insurance Policy.
An Investor is Betting on When You Will Die.
The life settlement industry is controversial because its business model is based on mortality. An investor buys your policy and continues to pay the premiums. Their profit is the difference between the death benefit they will eventually collect and what they paid you plus the premiums. This means they are making a financial bet on your life expectancy. While some find this morbid, for the policyholder, it’s simply a way to unlock the market value of an asset they would otherwise surrender or let lapse.
How a Viatical Settlement Can Provide Money for End-of-Life Care and Dreams.
Creating Joy and Dignity in a Final Chapter.
My friend was diagnosed with a terminal illness and given less than a year to live. He had a $250,000 life insurance policy. Through a viatical settlement, he was able to sell the policy for a lump sum of $180,000 in cash. That money transformed his final months. He paid off his medical bills, eliminating stress on his family. He hired in-home nursing care to be more comfortable. And he took his wife on one last, beautiful trip to Hawaii. It allowed him to live his final days with dignity and joy.
Don’t Just Let Your Policy Lapse! See What It Might Be Worth First.
You Could Be Throwing Away a Winning Lottery Ticket.
Lapsing a life insurance policy is often a huge financial mistake. Whether it’s a permanent policy you can no longer afford or a term policy you’re about to let expire, that policy might have significant hidden market value. Before you ever let a policy go, you have a fiduciary duty to yourself to find out what it’s worth. Contacting a life settlement broker takes very little time and could reveal that the policy you thought was worthless is actually a valuable asset that can be sold for a cash windfall.
The Tax Implications of a Life or Viatical Settlement.
The Payout Isn’t Always Tax-Free.
It’s crucial to understand the tax rules. For a viatical settlement (if you’re terminally ill), the proceeds are generally received completely tax-free. For a life settlement, the tax treatment is more complex. The portion of the settlement up to your premium payments (your cost basis) is tax-free. The portion from your basis up to the policy’s cash surrender value is taxed as ordinary income. Any amount you receive above the cash surrender value is taxed as a capital gain. It’s essential to consult a tax professional.
Who is Buying These Policies? A Look Inside the Life Settlement Industry.
Institutional Investors Seeking Uncorrelated Returns.
The buyers in the life settlement market are not shadowy individuals. They are large, sophisticated institutional investors like pension funds, hedge funds, and investment banks. They buy life insurance policies as an asset class because their returns are not correlated with the stock market or interest rates. The return is based on mortality, which makes it a unique and valuable part of a diversified investment portfolio. These large financial players are what create the competitive market that allows policyholders to get the best price.
How to Get Multiple Offers to Ensure You’re Getting the Best Price for Your Policy.
Don’t Take the First Offer. Create a Bidding War.
If you want to sell your life insurance policy, you should never go directly to a single life settlement company. You should always work with a licensed life settlement broker. A broker’s job is to represent you. They will package your policy and medical information and then shop it out to dozens of licensed buyers across the country. This creates a competitive auction environment, forcing the buyers to bid against each other and driving up the price you will ultimately receive for your policy.
The Surprising Types of Policies That Qualify for a Settlement (Even Term!).
It’s Not Just for Whole Life Anymore.
Many people think only permanent policies like whole life or universal life can be sold. But as the market has evolved, many types of policies have become eligible. Universal Life, Whole Life, and even Convertible Term Life are the most common. The key factors are the size of the death benefit (usually over $100,000) and the age and health of the insured. If you are a senior and have a policy you no longer need, it’s always worth exploring if it has a hidden market value.