Life insurance protects the finances of the insured’s beneficiaries in the event of the insured’s death. Sometimes the holder of such an insurance policy does not need the coverage or wishes to discontinue it. In this situation, selling the insurance policy with certain special conditions is possible.
What is selling my life insurance policy?
If you have a life insurance policy and wish to sell it, you should know that this is indeed possible. However, it is a somewhat different type of transaction than other sales of products or services.
These transactions are called life settlements, and we cannot do it in just any old way.
Typically, the life insurance policyholder will recruit an insurance broker. The insurance broker will be in charge of finding a buyer. In this sales transaction, the buyer pays a certain amount for the policy, and the broker receives a percentage for his services.
Once this operation has been carried out, the insurance buyer will be the one who assumes the payment of the premiums and who receives the amount agreed upon as indemnity in the event of the policyholder’s death.
In other words, a policyholder change is not being purchased but of beneficiary.
On the other hand, it is important to bear in mind that, generally, the amount that the policyholder will receive may be higher than the cash surrender value of the policy but much lower than the activation of the death coverage.
Selling your life insurance, step by step
The steps to sell your life insurance are not complicated:
- Find the right insurance broker: insurance brokers will ask for a percentage for the sale transaction. In some cases, they may also ask for some additional fixed amount. It is interesting to look for insurance brokers used to this type of life settlement transaction.
- Make the sale: once the insurance broker finds potential clients, the sale operation must be agreed upon. The buyer will pay a previously agreed amount. This way, the policyholder will no longer have to face the following expenses generated by the premium.
- Coverage in the event of death: in the event of the policyholder’s death, the policy buyer will receive the indemnity agreed upon in the initial conditions of the life insurance policy.
How much can life insurance be sold for?
There is no fixed amount, nor are there any clear-cut guidelines. There are usually a few factors used to determine the price at which you can sell your life insurance:
- The value of the coverage: logically, a life insurance policy with coverage of $100,000 will not have the same price as one with an indemnity amount of $500,000. Generally, the higher the limit of indemnity, the higher the selling price option.
- Years of the insured: although it may seem somewhat morbid, the older the insured’s age, the higher the value of the insurance sales price. This is based on the logic that the older the insured, the closer the insured’s death may be.
- Health of the insured: this value, like the previous one, is also considered. A person in poor health may try to obtain a higher value in the sale price of his life insurance.
A purchaser of an insurance policy from another person will value the insurance company with which the policy is underwritten. The more financially stable the insurer, the higher the price that can be attached to the transaction.
A life settlement to sell death insurance is often considered useful when the insurer no longer has beneficiaries dependent on the insurance proceeds. Also, it may be useful in the event of an immediate need for cash, although, in this case, it is considered a secondary option to other options such as loans.
We should keep in mind that the payment for the sale of life insurance implies receiving an amount much lower than the coverage reflected in the policy. That means it may not be a good idea when you have beneficiaries or heirs dependent on that amount.