Q

Can you sell your life insurance policy?

A

You can sell your policy to a third party for cash. The third party pays your premiums and receives the death benefit when you die.

If you no longer want your life insurance coverage, you may be able to sell your policy to a third party for a cash payout. Selling the policy means your beneficiaries will no longer receive the death benefit when you die.

Proceed with caution when deciding whether to sell your life insurance policy. Payouts are often very low, and they come with high overhead costs. Other options may be more valuable to you and your beneficiaries, such as using the cash value life of your policy or reducing your coverage amount.

KEY TAKEAWAYS

  • A life insurance policy sale is called a life settlement or viatical settlement

  • Life settlement brokers and companies buy policies from older and less healthy individuals in exchange for cash

  • Payouts are significantly lower than the death benefit and come with taxes and fees

  • Most people benefit more from reducing or canceling their coverage

How does selling a life insurance policy work?

Selling a life insurance policy is called a life settlement, sometimes known as a viatical settlement. You sell the policy to a third party for cash, usually a broker or settlement company. They pay your premiums and receive the death benefit when you die.

Expect to be asked about your health, as you were when you initially bought life insurance coverage. Unlike your life insurance underwriter, the life settlement company may offer you a better deal if you’re in poorer health. These third parties only profit after you pass away.

Buyers tend to purchase policies from people at least 65 years old, and often only from people much older than that. In fact, the older you are—that is, the shorter your life expectancy—the more you could earn from selling your policy. Your policy also usually needs to have a face value of at least $100,000.

Once the buyer pays you for the policy, you’ll no longer have life insurance coverage. That means your loved ones will not get a death benefit when you die. 

Should I sell my life insurance policy?

Whether you should sell your life insurance policy depends on your current financial circumstances and your end-of-life financial plans. Talk to your beneficiaries and a certified financial planner and insurance professional before making a decision.

When selling a life insurance policy makes sense

Getting a life settlement is an option if:

  • No dependents rely on your income

  • You have enough savings to self-insure

  • You can no longer afford your policy

If you can’t afford your policy anymore, a life settlement is one way to get some value out of your policy. If you no longer need your policy it’s usually simpler to let your policy lapse or cancel it, even if you’d like the extra cash. 

Be certain that your beneficiaries no longer need your life insurance proceeds before considering a life settlement. You’ll receive significantly less cash from the sale than your policy’s death benefit would pay out.

Why you shouldn’t sell your life insurance policy

If you have a policy you can’t afford or don’t need, a life settlement may seem appealing. However, it’s generally more costly and complicated than it’s worth to pursue a life insurance policy sale. 

  • Selling is difficult: Many buyers won’t purchase a policy unless they’re sure they can recoup their investment, so it can be hard to find a good offer.

  • Returns are low: The payment for your policy will likely be a small portion of your policy’s death benefit, sometimes just 20-25% of the face value.

  • Brokers charge fees: Life settlement companies and brokers may take a commission from your payment, which can be as high as 30%.

  • The sale is taxable: The payment you receive is usually considered taxable income, and could affect your eligibility for public assistance benefits.

You should also be wary of unscrupulous life settlement providers who target seniors. These fraudsters offer seniors cash to be the insured on a policy that pays out to a third party. Though they’ll argue the senior is at no risk by participating, these agreements are broadly outlawed. 

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What are alternatives to selling a life insurance policy?

Most people will find a better and less complicated financial solution by canceling their current life insurance policy, adding riders to their policy, or finding ways to lower their premiums.

  • Ask to lower your coverage amount: Not every provider offers this option, but reducing your coverage is an easy way to lower your premiums to fit your budget.

  • Cancel your policy: With term life insurance, your policy ideally expires when you no longer need it. If your policy hasn’t expired yet, you can cancel it or let it lapse with no penalty.

  • Surrender your policy: Whole life insurance owners may be able to surrender their coverage and receive some of their cash value in return, but it can incur fees.

  • Use your cash value: Some permanent life insurance allows you to pay premiums with your accumulated cash value amount if you can’t afford your premiums out-of-pocket.

  • 1035 exchange: If you can no longer afford your cash value policy, a 1035 exchange can help you trade for a less expensive whole life policy or annuity.

  • Living benefits riders: Those who need cash for end-of-life medical expenses can access some of their life insurance funds with accelerated benefits riders if they have a qualifying illness.

If you already sold your life insurance policy but are having seller’s remorse, you might be able to reverse your sale and reinstate your coverage. Some states require life settlement brokers to return your life insurance policy if you refund the settlement to them within a set period. Check with your state insurance department for details.

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Is selling a life insurance policy worth it?

For most people, selling your life insurance policy doesn't offer a valuable return—in fact, it could come with tacked on costs that make it a burden rather than a financial gain. 

You're better off utilizing traditional investment vehicles, which have a higher rate of return, to access cash in retirement. If you can no longer pay for your policy, speak to an agent about ways you can alter your coverage to make it more affordable.

Speak to a financial advisor if you’re unsure whether selling a life insurance policy is the right move for you.

Selling your life insurance policy FAQ:

Can I sell my life insurance policy?

You can sell your policy to a life settlement broker or company if it’s worth $100,000 or more and you’re of a certain age. Seniors and terminally ill individuals will have the most success.

How much can you earn from selling your policy?

It depends on your death benefit amount and your overall health. Some brokers estimate you can make 20-25% of your policy’s benefit amount (before subtracting commission and taxes).

Is it worth it to sell your life insurance policy?

Most people won’t benefit from selling their policy because of its financial complications, including taxes and commission fees, that reduce the value of your sale.

Life Insurance Expert

Amanda Shih

Life Insurance Expert

Amanda Shih is a life insurance editor at Policygenius in New York City. She has a passion for making complex topics relatable and understandable, and has been writing about insurance since 2017 with specialities in life insurance cost and policy types. She's previously written for Jetty and LegalZoom.

Life Insurance Expert

Nupur Gambhir

Life Insurance Expert

Nupur Gambhir is a life insurance editor at Policygenius in New York City. She has researched and written extensively about life insurance since 2019, with specialties in life insurance companies, policy types, and end-of-life planning. Her writing on insurance and finance has appeared on MSN, The Financial Gym, and end-of-life planning service Cake. Previously, she worked in marketing and business development for travel and tech.