Life can be tough to predict. It’s one of the best and worst things about being human. Sometimes life’s surprises are amazing, and sometimes they’re challenging. When those difficult times come, one option you might consider is selling your life insurance policy.
Why would people sell their life insurance?
It’s possible to sell several different types of life insurance policies, but most people who do so have permanent or whole life insurance policies. These are great, but they are also long-term commitments. Sometimes it becomes impossible to keep up with the premium payments.
Financial issues of this nature most often arise because of illness. Occasionally they come for other reasons, but most people who sell their life insurance policies are over the age of 65. People who have a terminal or chronic illness can also sell their policies in a unique transaction known as a viatical settlement.
What is a viatical settlement?
This is a settlement only open to those who have less than 24 months’ life expectancy or who are chronically ill. State laws vary, but most chronic illnesses must meet a basic standard definition in order to qualify. Usually, the person must be unable to perform two or more basic life skills without help.
In a viatical settlement, you will usually be offered more than you would if you settled for other reasons. Most people choose a viatical settlement in order to pay off medical bills, to pay for chronic care, or to receive funds to enjoy their last days of life.
Who buys life insurance settlements?
There are financial entities out there willing to buy life insurance policies. Typically, they go through brokers to get this done, and brokers tend to bundle policies for the buyers. Some policies pay off for providers and others don’t, so it’s in the buyers’ best interests to hold quite a few.
The buyer gives you a cash settlement that is more than the face value of your life insurance policy but less than the final death benefit. They then take over paying your premiums and collect when you pass away.
How does it all work?
You contact a broker or buyer and get a general estimate of what your policy is worth. The final offer will be based on a medical underwriter’s assessment of the details of the policy, your medical records, and your life expectancy.
If a buyer makes an offer, you can choose to sell or not. If you do, you’ll occasionally get a postcard from the buyer that you’ll need to fill out and send back to verify that you are still alive. When you pass way, the buyer gets your death benefit.
Should I do it?
As you look into selling your life insurance policy, there are a few things to ask yourself:
Do you need coverage? If your family will need that money in order to cover expenses and loss of income after you’re gone, you may want to keep the policy. If you’re not worried about that, you may want the money to use for yourself.
Is there another way to pay the premium? If you need the money for your dependents but can’t pay the premiums, it’s worth looking at other ways to resolve the issue. For example, you might lower the end death benefit and pay lower premiums.
Do you qualify? In most cases, you need to have a policy worth at least $50,000 in order to sell it. You’ll get the best return for policies worth $100,000 or more. If you’re applying for a viatical settlement, you’ll need a doctor’s verification that you have 24 months or less to live or that you qualify as having a chronic illness.
What is your current financial situation? In some cases, medical bills and care needs can be serious financial burdens. Even if you wish to leave your dependents with some income, sometimes it may be better to stay out of debt before you die rather than leave them more when you go.
Either way, your life insurance policy is supposed to help you. And if you don’t feel like that’s the case with your policy, then you have options.