If you have a life insurance policy you no longer need, it’s possible to sell it — but it comes with all kinds of costs and makes financial sense only in very rare cases. You’ll lose all ownership of the policy, have to pay steep fees and taxes, and, most importantly, your loved ones won't get covered in the event of your death.
However, if you have a whole life insurance policy that has accumulated significant cash value and you can no longer afford the premiums or need money to cover an unexpected expense, selling your policy could be an option.
When it makes sense to sell your life insurance
The most common scenario where selling your life insurance makes sense is when you have a whole life insurance policy you can no longer afford. In most cases, if the policy has accumulated any cash value, you’ll be able to keep it when you sell.
Selling your life insurance policy is rarely a good option in any other scenario.
When it doesn’t make sense to sell your life insurance
Term life insurance, especially, is generally not worth the trouble of selling. Term life policies only sell for a fraction of what the death benefit is worth, plus you have to pay fees to your broker. Term life policies also don’t have a cash value that you can keep.
If you want to save on your life insurance premiums, you’re better off reducing the death benefit or canceling the policy entirely rather than selling it. A life insurance agent can help with that.
Who can sell their life insurance policy?
You usually can sell your life insurance policy if you meet the following criteria.
You must be the policyholder of the policy you’re selling.
The policy needs to have a death benefit of at least $100,000.
In most cases, you need to be at least 65 years old to sell a policy, but you may be able to sell your policy if you’re younger and have a verifiable health condition, such as multiple sclerosis or diabetes.
What types of life insurance can be sold?
But if you have a group life insurance policy, you can’t sell it because you’re not the owner of the policy — your employer, who most likely is sponsoring your policy, owns it.
How to sell your life insurance
1. Understand the process
Selling a life insurance policy is like selling anything else — you have to find a buyer. Your buyer will take on the responsibility of the premium payments and pay a large fee to someday receive the death benefit of your policy. It’s a lot of risk for relatively small gain.
When you sell a life insurance policy, you’re forfeiting your right to the death benefit. When you die, the buyer will receive the death benefit — which means your beneficiaries will no longer be covered in the event of your death.
2. Calculate how much you can get for your life insurance
Usually, you can sell a policy for about 20% of the total death benefit. This will depend on your overall risk, including your health status, age, and the type of policy you’re selling.
You’ll also have to pay a broker’s fee and taxes related to the transaction, which can amount to up to 30%. So, for example, if you sell a $100,000 whole life policy for $20,000, you would have to pay at least $6,000 in fees alone to make the sale. You’d also pay taxes because any amount of money you receive from selling a policy will be considered taxable income by the IRS.
On the other hand, you’ll at least be able to keep any cash value that the policy accumulated — as long as it is a permanent policy; term life policies don’t have cash value. But you’ll also have to pay taxes on the cash value you receive.
3. Consult with an independent advisor
Checking with an independent advisor before you sell your life insurance policy can help you decide whether or not selling is a good idea. The advisor will be free to help you weigh your options and recommend a broker if you decide to move forward.
4. Gather important documents
You’ll need to make sure that you have all of your policy documents for your life insurance coverage so you can transfer the policy over if you wish. You also may be asked for certain medical records so potential buyers can assess your risk.
5. Find a reputable broker
Find a broker with a good reputation who is able to work for your interests and find you the best opportunity to sell your insurance policy. Your financial advisor will likely be able to connect you with a good broker.
Be wary of unscrupulous life settlement providers who target seniors. These providers offer cash to apply for a policy that pays out to a third party. Though they might argue that participating puts you at no risk, these agreements are broadly outlawed.
6. Compare multiple offers
Your broker will help you solicit offers from multiple buyers. Together, you can select the best offer and complete the transaction.
Pros and cons of selling a life insurance
Whether you should sell your life insurance policy depends on your unique circumstances and your end-of-life financial plans. Talk to your beneficiaries and a certified financial planner before making a decision.
You’ll get some value from selling a policy with a cash value.
You can stop paying premiums.
It’s difficult to find a buyer. 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 if you’re not critically ill.
Returns are low. The payment for your policy will be a small portion of your policy’s death benefit, sometimes just 20% to 25% of the face value. 
Brokers charge fees. Life settlement companies and brokers usually take a commission from your payment, sometimes as high as 30%. 
The sale is taxable. The payment you receive is treated as taxable income.
You lose your coverage. Most importantly, if you sell the policy, you’ll no longer be covered. — when you die, your beneficiaries won’t receive any death benefit.
Alternatives to selling your life insurance policy
In most cases, selling your life insurance policy will not be as advantageous as simply canceling it or finding ways to lower your life insurance costs.
Decrease your coverage amount: Not every insurance 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, you can cancel your policy or let it lapse with no penalty.
Surrender your policy: If you have whole life insurance, you may be able to surrender your coverage and receive some of the cash value in return, but you’ll probably pay fees in the process.
Use your cash value: Some permanent life insurance allow you to pay premiums with your accumulated cash value if you can’t afford to keep making payments out-of-pocket.
Leverage a 1035 exchange: A 1035 exchange can help you trade your current life insurance for a less expensive whole life policy or annuity, without having to pay tax on any gains.
If you’re unsure whether selling a life insurance policy is the right move for you, speaking with a financial advisor to learn more about life insurance can help you explore your options.