What is term life insurance?

Term life insurance is a form of life insurance that pays out a death benefit to the policyholder if the insured dies within a certain period of time. A perpetual life insurance policy, on the other hand, will continue in effect until the insured’s death or until the policy’s maturity date [1].

The principal earner often uses term life insurance in a family to guarantee that their dependents would be financially supported if they die before retirement. However, many individuals keep term insurance plans after they retire for various reasons.

The most noticeable disadvantage of term life insurance is that it provides no benefit if the policy ends while the insured is still alive. There are, however, methods for a policyholder to get more value out of an active term life insurance that they no longer want.

A life settlement may often be used to sell a term life insurance policy. However, unlike seeking a life settlement for a whole life or universal life policy, you must first complete a few steps before selling a term life insurance policy. Those steps are listed below.

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Can you sell a term life insurance policy?

You can sell a term life insurance policy for cash, but if it’s the sort that can be converted to a whole or universal life policy, it’ll generally be worth a lot more on the market [2]. A conversion rider is a clause in a term life insurance that allows for this move. However, it will usually impose a time restriction for converting your insurance – usually, before your term policy ends – as well as an age limit of 65 to 70 years.

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Check to See If Your Policy Can Be Convertible.

You may have been asked whether you wanted to add a conversion rider while purchasing term life insurance. This rider lets you convert a term life insurance policy to a whole life insurance policy. These riders may come at an additional expense, but in return, you acquire the chance to retrieve part of the value via a settlement or by continuing to carry the policy for the rest of your life. If you buy a convertible policy, you may convert it at any time without having to undergo another medical test to assess your health status. The face value usually stays the same when you change your insurance, but your premiums will go up because of the new permanent coverage’s cash-building advantage [3].

If your term life insurance doesn’t have a conversion rider, you won’t be able to sell it via a life settlement. The only exception to this regulation is if you have term coverage and are suffering from a life-threatening or terminal illness. You may still be able to sell your term life insurance policy in such an event, and you should contact a life settlement provider to explore your choices.

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If you have a conversion rider, make sure you read it well.

The majority of conversion riders have a time limit. If your term life insurance is reaching the end of its term, you should evaluate the rider to ensure it is still valid. If the rider hasn’t expired, you may change the insurance from a perm to a permanent policy – whole life or universal life. Converting a policy is a major choice with significant financial implications. If you decide to convert the policy, make sure you read and understand the conversion rider well before proceeding. Suppose you have concerns regarding the convertibility of your policy. In that case, a life settlement expert can explain the facts to you (assuming you have the policy) or even call your insurance company with you on the line to be sure you have all the information you need.

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Before converting, see whether you qualify for a life settlement.

Check with a top life settlement business before making any changes to your life insurance policy to determine whether you would be able to qualify if you converted the policy. It’s simple and free to see whether you’re qualified for a life settlement, and it generally takes less than five minutes.

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Selling of a life insurance policy for cash

A life settlement, or selling a life insurance policy for cash, is feasible after a term life insurance policy is converted to a permanent policy. The seller gets a cash payout larger than the policy’s cash surrender value (what you get if you voluntarily cancel your policy) but less than the policy’s death benefit in this transaction. When the insured individual dies, the buyer takes payment of future premiums and gets the policy’s death benefit. To be eligible for a life settlement, you must be at least 65 years old, and some firms require you to be at least 70 years old or have a severe medical condition.

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The Advantages and Disadvantages of Selling Your Life Insurance Policy

Pros

If your life insurance policy is no longer required or affordable, and you need cash for living expenses, making a life settlement by selling it might be a wise decision. You may use the funds to supplement your retirement savings, medical expenses, or long-term care.

If you’ve been diagnosed with a terminal or life-threatening disease, you may be eligible for a viatical settlement instead of surrendering your life insurance. A viatical settlement has no minimum age restriction, unlike typical life settlements.

Cons

In some instances, selling your life insurance policy for cash isn’t the best decision. If you require long-term care or have been given a short life expectancy due to illness, acquiring a policy rider that enables you to withdraw some money to pay for your care may be a better option.

An accelerated death benefit rider permits a person who has received a terminal diagnosis, requires an organ transplant, is in hospice care, or requires help with everyday functions such as washing and toileting to accept a cash advance from their policy. The funds may be used for medical treatments as well as personal needs. A long-term care rider is meant to cover long-term care costs for those who are unable to do at least two fundamental daily living chores independently.

Converting your term life policy to a permanent policy and selling it might be an excellent method to earn income for your retirement. Or it could fund medical or long-term care expenditures if you don’t require life insurance protection for your survivors. But, again, a financial adviser can assist you in assessing your financial requirements and objectives, weighing your alternatives, and making the best decision for you and your family [4].

If you’ve already sold your life insurance policy but are doubting your decision, you may be able to reverse the transaction and have your coverage reinstated. Some jurisdictions require life settlement brokers to return your life insurance policy if you pay them back within a specific time frame. For further information, contact your state’s insurance department.

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References

  • [1] Kenneth. Black and H. D. Skipper, “Life insurance,” p. 1064, 1994.
  • [2] “6 Ways to Capture the Cash Value in Life Insurance.” https://www.investopedia.com/articles/personal-finance/082114/6-ways-capture-cash-value-life-insurance.asp (accessed Feb. 15, 2022).
  • [3] “7 things you need to know about Selling a Term Life Insurance Policy – Lighthouse Life.” https://www.lighthouselife.com/blog/7-things-you-need-to-know-about-selling-a-term-life-policy/ (accessed Feb. 15, 2022).
  • [4] “The Pros and Cons of Selling Your Life Insurance | Retirement Starts Today Radio.” https://retirementstartstodayradio.com/selling-your-life-insurance/ (accessed Feb. 15, 2022).

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