Can you sell your life insurance policy?

You can sell your policy to a third party for cash, but there are limitations, tax implications and fees to consider — and it makes sense financially only in a few instances, like when you have a whole life policy with cash value.

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Amanda ShihAmanda ShihEditor & Licensed Life Insurance ExpertAmanda Shih is a licensed life, disability, and health insurance expert and a former editor at Policygenius, where she covered life insurance and disability insurance. Her expertise has appeared in Slate, Lifehacker, Little Spoon, and J.D. Power.&Tory CrowleyTory CrowleyAssociate Editor & Licensed Life Insurance ExpertTory Crowley is an associate editor and a licensed insurance expert at Policygenius. Previously, she worked directly with clients at Policygenius, advising nearly 3,000 of them on life insurance options. She has also worked at the Daily News and various nonprofit organizations.

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If you have a life insurance policy you no longer need, it's possible to sell it. But selling your life insurance means you’ll lose all ownership of the policy, and your beneficiaries won't get the death benefit when you die. Most importantly, it might not make financial sense. 

It can be complicated to sell a life insurance policy, and there are fees and taxes associated with the transaction. When it comes to term life insurance — which expires after a set term and doesn’t have cash value — it’s rarely worth it financially to sell your policy. 

For a whole life insurance policy — which never expires as long as you pay the premiums and comes with a cash value component — it can sometimes be beneficial to sell, especially if there’s a significant cash value associated with the policy. Consult with a financial advisor to make sure you understand the costs before you sell your policy.

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 critically ill people 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

When it makes sense to sell your life insurance

Selling your life insurance policy is worth considering if you have a whole life 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 — a process usually called life settlement or viatical settlement — is rarely a good option in any other scenario. 

When it doesn’t make sense to sell your life insurance

It rarely is in your best interest to sell a life insurance policy. The taxes and fees associated with the transaction can cut significantly into the small profit you would make from the sale. 

Term life policies, especially, are generally not worth the trouble of selling. If you want to save on your life insurance premiums, you’re better off reducing the death benefit or canceling the policy entirely.

→Learn more about how to cancel your life insurance policy  

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Who can sell their life insurance policy?

Most people can sell their life insurance policies if they choose to, but there are some limitations. 

  • You must be both the owner — also called policyholder — and the insured person on 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 exceptions are often made for younger individuals if they have verifiable health conditions

What types of life insurance can be sold?

Most types of life insurance can be sold, including term, whole, universal life, and variable life insurance policies. 

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. 

Pros and cons of selling a life insurance

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

Pros 

The main benefit of selling your life insurance — aside from not having to pay monthly premiums – is that a life settlement can help you get some value out of a permanent insurance policy if you can't afford to keep it.

The main reasons to sell your life insurance policy include:

  • You can cash in any cash value the policy has accumulated.

  • You can stop making paying premiums on the policy.

  • It could be an indicator that you have enough money to self-insure and no longer need the policy.

Cons 

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. 

There are many reasons not to sell your life insurance policy. 

  • Selling a life insurance policy 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 be a small portion of your policy’s death benefit, sometimes just 20% to 25% of the face value. [1]

  • Brokers charge fees: Life settlement companies and brokers may take a commission from your payment, sometimes as high as 30%. [2]

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

  • You lose your coverage. Most importantly, if you sell the policy, you lose the benefit. Be certain that your beneficiaries no longer need your life insurance proceeds before considering a life settlement.

Be wary of unscrupulous life settlement providers who target seniors. These providers offer seniors 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.

How to sell your life insurance

  1. Find a broker A reputable broker will help you find someone to buy your life insurance policy. The broker will also charge a fee for their services. 

  2. Gather the necessary documents Anyone purchasing your policy will want to review your policy documents and medical records before they buy your policy from you. 

  3. Find interested buyers and compare offers You can then select a buyer with a good reputation that offers you a competitive price for your policy.

  4. Sign ownership of the policy over your buyer You’ll officially transfer ownership of your policy from yourself to the buyer and in exchange, you’ll be paid a taxable, lump-sum payment. 

  5. Your buyer pays the premiums Your buyer will own the policy and pay the premiums to keep the policy active.

  6. When you die, the buyer claims the death benefit Your beneficiaries will have no claim to the death benefit. The buyer will receive the death benefit in full. 

How much can you get for your life insurance?

Usually, you can sell a policy for about 20% of the death benefit. This will depend on your overall risk, including your health status, age, and the type of policy you’re selling. 

If you sell a $100,000 whole life policy, you might get to keep $20,000. You may also need to pay a broker’s fee, which can be as much as 30% and then pay taxes on the profit. You’ll also get to keep any cash value that the policy accumulated. 

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Tips for selling your life insurance

Understand the process 

When you sell a life insurance policy, you’re forfeiting your right to the death benefit. Anyone who buys your policy from you will pay you a fraction of the death benefit — usually about 20%. You’ll also likely pay a broker’s fee and taxes related to the transaction. 

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.  

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 buyers can assess your risk. 

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 advisor will likely be able to connect you with a good broker. 

Compare multiple offers

Your broker will help you solicit offers from multiple buyers. Together, you can select the best offer and set up the transaction. 

Alternatives to selling your life insurance policy

Most people will find canceling their current life insurance policy or finding ways to lower their premiums to be better and less complicated financial solutions than selling.

  • Ask to lower 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: Whole life insurance owners may be able to surrender their coverage and receive some of their cash value in return, but the process can incur fees.

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

  • Leverage a 1035 exchange: If you can no longer afford your cash value policy, a 1035 exchange can help you trade your current life insurance for a less expensive whole life policy or annuity. Section 1035 of the U.S. tax code allows you to exchange an existing annuity contract for a new one without paying tax on the income and investment gains in your current account. [3]

If you’re unsure whether selling a life insurance policy is the right move for you, speak to a financial advisor to learn more about life insurance and get answers to your questions.

Is it worth it to sell your life insurance?

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. 

If you can no longer pay for your policy, or simply no longer need it, speak to an agent about ways you can alter your coverage to make it more affordable.

Frequently asked questions

Can you sell your life insurance policy for cash?

You can sell your life insurance policy for cash. You must be the owner and insured on the policy, the policy must have a face value of $100,000, and, in most cases, you must be at least 65-years-old to sell a policy. Seniors and terminally ill people will have the most success selling a life insurance policy.

Can you sell your term life insurance policy?

You can sell a term life policy, but it’s usually not recommended as the costs of selling the policy usually cancel out any profit you would make. In most cases, you’re better off reducing the face amount of your term life policy or canceling it altogether.

Do you have to pay taxes if you sell your life insurance policy?

Any profit that you make from selling your life insurance policy will be treated as taxable income.

References

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Policygenius uses external sources, including government data, industry studies, and reputable news organizations to supplement proprietary marketplace data and internal expertise. Learn more about how we use and vet external sources as part of our

editorial standards.
  1. Magna Life Settlements

    . "

    Sell Life Insurance Policy for Cash Payout

    ." Accessed January 31, 2023.

  2. Financial Industry Regulatory Authority

    (FINRA). "

    Seniors Beware: What You Should Know About Life Settlements

    ." Accessed January 31, 2023.

  3. Investor.gov

    . "

    Section 1035

    ." Accessed January 31, 2023.

Authors

Amanda Shih is a licensed life, disability, and health insurance expert and a former editor at Policygenius, where she covered life insurance and disability insurance. Her expertise has appeared in Slate, Lifehacker, Little Spoon, and J.D. Power.

Tory Crowley is an associate editor and a licensed insurance expert at Policygenius. Previously, she worked directly with clients at Policygenius, advising nearly 3,000 of them on life insurance options. She has also worked at the Daily News and various nonprofit organizations.

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