Can You Cash in on a Term Life Insurance Policy?

For the majority of people who acquire life insurance policies, they are a financial safety net which ensures both their financial obligations and family members are taken care of once they pass away. Maybe they want to ensure there’s enough money to pay their funeral expenses, leave their children an inheritance, or allow a spouse to pay off outstanding bills like a mortgage or credit card debt.

Basically, depending on who and what they may leave behind, people buy a life insurance policy to gain peace of mind. But what should you do if your financial burdens become overwhelming? Perhaps your family’s circumstances have changed, and your monthly premium payments and policy proceeds could be better spent elsewhere. Maybe cashing in on your life insurance company policy could be more beneficial to you and your dependents now rather than later.

What is a life settlement?

Many people aren’t aware that cashing in a life insurance policy is sometimes the best option for them with many pros. Cashing in on your policy is an entirely different process than a policy loan, borrowing against your policy, surrendering your policy, or cancelling the policy and accepting the policy’s cash value.

The process of cashing in or selling a life insurance policy is known as a “life settlement.” LISA, the Life Insurance Settlement Association, defines a life settlement as “the sale by the owner of a life insurance policy to a third party for an amount greater than its cash surrender value and less than the death benefit.” On the association’s website, LISA explains that the “seller of the policy receives a cash payment” while the “buyer of the policy assumes all future premiums payments and receives the death benefit upon the passing of the insured.”
What this means to the policyholder is that he or she will receive an amount of money that is less than the death benefit his or her family would receive in the event of their death. However, the amount will be more than the cash surrender payout. Oftentimes, the cash value of your policy is a win-win situation. Also, in the event of illness, it is often a good choice.

So how do you know if a life settlement is the right choice for you, or if your insurance policy’s death benefit can be sold?

Types of insurance policies

When it comes to cashing in on your policy for better returns, the type of policy you hold makes a big difference. For many people, this aspect of life insurance coverage can be complicated, but it’s a good idea to understand the differences in permanent life insurance policies, term life policies, whole life insurance, universal life, group policies, and convertible policies.

A permanent life policy is life insurance that doesn’t expire after a set period of time. As long as premiums are paid as expected, the life of the policy has no specified end date other than the insured’s death. Additionally, permanent policies build cash value as those premiums are paid, which gives policy owners the option of borrowing against the savings amount that has been accumulated throughout the life of the policy.

Whole life and universal life are two types of permanent insurance policies. The difference in whole and universal life has to do with the way the policy’s savings grow. With a whole life policy, savings grow at a guaranteed rate. The savings of a universal policy, however, are based on market performance. There are also differences in the way premiums are paid for universal and whole life plans.

Term life can qualify for a life settlement

Term insurance is a policy that is purchased and paid out for a specific period of time. At the end of the term, you stop paying premiums and your beneficiaries will no longer receive a death benefit if you pass away. A standard term life insurance policy is often eligible for renewal for a new time period, or can be converted to permanent life insurance coverage with no expiration date — thus the term “convertible” policy. Term life insurance typically offers a consistent, level premium amount and no savings options.

When it comes to your eligibility for a life settlement, permanent policies like whole life and universal life may make the best candidates, but term policies also qualify in certain situations. If you have term coverage, you should pursue the process of selling your term life insurance coverage and let the life settlement broker or buyer make the final determination of your eligibility.

If you’re not sure which type of life insurance you own, contact your insurance company or an insurance agent for a complete explanation of your benefits.

Other qualifications for life settlement

Not every policy or policyholder will qualify for a life settlement. Although every case is unique, the policy’s face value or death benefit as well as your age and health status or medical history will impact your eligibility.

Generally, policies with an amount of coverage of $100,000 or more are the best candidates for a life settlement. The best candidates for life settlements are policyholders aged 76 or older and are in at least good health but not necessarily excellent health.

Of course, there are exceptions to these guidelines. For example, a younger policyholder who has been diagnosed with a terminal illness with a life expectancy of 2 years or less, or serious medical condition such as cancer, Alzheimer’s disease, or ALS (often referred to as Lou Gehrig’s disease) may qualify to sell ownership of the policy in a similar transaction known as a viatical settlement. Access to medical records are needed for a company to verify your health status and determine your eligibility for a viatical settlement.

What to expect when you sell a policy

Just like qualifications for selling a policy through a life settlement, the amount you can expect to receive will depend upon a number of factors. As a rule of thumb, the higher your policy’s value and the lower your premium amount, the more you can expect to receive from selling your policy.

It’s easy to understand why the value of a life policy is a factor, but why does the premium amount matter? Remember that in a life settlement transaction, the entity buying your policy will assume payment of all of the premiums until the event of your death, when they will be paid the death benefit. If the amount of money they’ve paid to buy your policy plus the amount they’ll pay in premiums is too high and near the amount of your death benefit, the transaction might not make financial sense for the buyer.

If you do qualify for a life settlement, however, the process of selling your policy’s death benefit for a cash value component is fairly straightforward. You should start by contacting a company to see if you qualify. If you initially qualify, the company will verify your information and provide you with an offer for your policy.

If you agree to the offer, you’ll receive paperwork to sign. Once completed, this will authorize the buyer to take over payment of your premiums as well as make them the beneficiary of your policy’s proceeds. Upon completion of this step, you will receive your payout of the agreed-upon amount.

When you accept and receive these funds, keep in mind that you may have income tax implications from this income. Additionally, if you currently qualify for government assistance like Medicaid, this income may affect your eligibility for these programs. As you consider whether or not to sell your insurance policy in a life settlement, be sure to contact your financial advisor and any necessary agencies before finalizing your sales agreement to ensure you are aware of any tax liabilities and implications.

Is a life settlement right for you?

You may believe that you are a great candidate for a life settlement based on your insurance policy type, value, and premium amount, as well as your age and health situation. How do you fully determine if this option is a good thing for you?

Every individual will have their own unique motivations for selling their life insurance for cash. However, there are some common reasons people consider a life settlement.

You no longer have beneficiaries

Perhaps your children or spouse who had been named as your beneficiaries have predeceased you, or they are no longer financially dependent. Maybe you no longer have concerns about your family’s need for funds and don’t have anyone else in mind to receive your death benefit.

You no longer have looming debt

Similarly, you may no longer anticipate great financial needs at the time of your death. Maybe you’ve worked hard to pay off your mortgage, you’re free of personal loans and credit card debt, and your children’s student loans for college tuition are paid in full. Likewise, you may find yourself over-insured, with more than enough coverage or money in your savings account to leave your family in a solid financial position.

You have present financial worries

Your current financial situation is more important than that of your beneficiaries would be after your death. Whether you’re facing a job loss, medical crisis, need for long-term care, or something equally expensive, you may have few options for funding. Using cash from your life insurance proceeds would be of great benefit to you.

Whatever your reason for considering cashing in on your term life insurance policy or other life policy type, feel free to reach out to a qualified life settlement company like SellMyLifeInsurancePolicy.com for more information.

For the majority of people who acquire life insurance policies, they are a financial safety net which ensures both their financial obligations and family members are taken care of once they pass away. Maybe they want to ensure there’s enough money to pay their funeral expenses, leave their children an inheritance, or allow a spouse to pay off outstanding bills like a mortgage or credit card debt.

Basically, depending on who and what they may leave behind, people buy a life insurance policy to gain peace of mind. But what should you do if your financial burdens become overwhelming? Perhaps your family’s circumstances have changed, and your monthly premium payments and policy proceeds could be better spent elsewhere. Maybe cashing in on your life insurance company policy could be more beneficial to you and your dependents now rather than later.

What is a life settlement?

Many people aren’t aware that cashing in a life insurance policy is sometimes the best option for them with many pros. Cashing in on your policy is an entirely different process than a policy loan, borrowing against your policy, surrendering your policy, or cancelling the policy and accepting the policy’s cash value.

The process of cashing in or selling a life insurance policy is known as a “life settlement.” LISA, the Life Insurance Settlement Association, defines a life settlement as “the sale by the owner of a life insurance policy to a third party for an amount greater than its cash surrender value and less than the death benefit.” On the association’s website, LISA explains that the “seller of the policy receives a cash payment” while the “buyer of the policy assumes all future premiums payments and receives the death benefit upon the passing of the insured.”

What this means to the policyholder is that he or she will receive an amount of money that is less than the death benefit his or her family would receive in the event of their death. However, the amount will be more than the cash surrender payout. Oftentimes, the cash value of your policy is a win-win situation. Also, in the event of illness, it is often a good choice.

So how do you know if a life settlement is the right choice for you, or if your insurance policy’s death benefit can be sold?

Types of insurance policies

When it comes to cashing in on your policy for better returns, the type of policy you hold makes a big difference. For many people, this aspect of life insurance coverage can be complicated, but it’s a good idea to understand the differences in permanent life insurance policies, term life policies, whole life insurance, universal life, group policies, and convertible policies.

A permanent life policy is life insurance that doesn’t expire after a set period of time. As long as premiums are paid as expected, the life of the policy has no specified end date other than the insured’s death. Additionally, permanent policies build cash value as those premiums are paid, which gives policy owners the option of borrowing against the savings amount that has been accumulated throughout the life of the policy.

Whole life and universal life are two types of permanent insurance policies. The difference in whole and universal life has to do with the way the policy’s savings grow. With a whole life policy, savings grow at a guaranteed rate. The savings of a universal policy, however, are based on market performance. There are also differences in the way premiums are paid for universal and whole life plans.

Term life can qualify for a life settlement

Term insurance is a policy that is purchased and paid out for a specific period of time. At the end of the term, you stop paying premiums and your beneficiaries will no longer receive a death benefit if you pass away. A standard term life insurance policy is often eligible for renewal for a new time period, or can be converted to permanent life insurance coverage with no expiration date — thus the term “convertible” policy. Term life insurance typically offers a consistent, level premium amount and no savings options.

When it comes to your eligibility for a life settlement, permanent policies like whole life and universal life may make the best candidates, but term policies also qualify in certain situations. If you have term coverage, you should pursue the process of selling your term life insurance coverage and let the life settlement broker or buyer make the final determination of your eligibility.

If you’re not sure which type of life insurance you own, contact your insurance company or an insurance agent for a complete explanation of your benefits.

Other qualifications for life settlement

Not every policy or policyholder will qualify for a life settlement. Although every case is unique, the policy’s face value or death benefit as well as your age and health status or medical history will impact your eligibility.

Generally, policies with an amount of coverage of $100,000 or more are the best candidates for a life settlement. The best candidates for life settlements are policyholders aged 76 or older and are in at least good health but not necessarily excellent health.

Of course, there are exceptions to these guidelines. For example, a younger policyholder who has been diagnosed with a terminal illness with a life expectancy of 2 years or less, or serious medical condition such as cancer, Alzheimer’s disease, or ALS (often referred to as Lou Gehrig’s disease) may qualify to sell ownership of the policy in a similar transaction known as a viatical settlement. Access to medical records are needed for a company to verify your health status and determine your eligibility for a viatical settlement.

What to expect when you sell a policy

Just like qualifications for selling a policy through a life settlement, the amount you can expect to receive will depend upon a number of factors. As a rule of thumb, the higher your policy’s value and the lower your premium amount, the more you can expect to receive from selling your policy.

It’s easy to understand why the value of a life policy is a factor, but why does the premium amount matter? Remember that in a life settlement transaction, the entity buying your policy will assume payment of all of the premiums until the event of your death, when they will be paid the death benefit. If the amount of money they’ve paid to buy your policy plus the amount they’ll pay in premiums is too high and near the amount of your death benefit, the transaction might not make financial sense for the buyer.

If you do qualify for a life settlement, however, the process of selling your policy’s death benefit for a cash value component is fairly straightforward. You should start by contacting a company to see if you qualify. If you initially qualify, the company will verify your information and provide you with an offer for your policy.

If you agree to the offer, you’ll receive paperwork to sign. Once completed, this will authorize the buyer to take over payment of your premiums as well as make them the beneficiary of your policy’s proceeds. Upon completion of this step, you will receive your payout of the agreed-upon amount.

When you accept and receive these funds, keep in mind that you may have income tax implications from this income. Additionally, if you currently qualify for government assistance like Medicaid, this income may affect your eligibility for these programs. As you consider whether or not to sell your insurance policy in a life settlement, be sure to contact your financial advisor and any necessary agencies before finalizing your sales agreement to ensure you are aware of any tax liabilities and implications.

Is a life settlement right for you?

You may believe that you are a great candidate for a life settlement based on your insurance policy type, value, and premium amount, as well as your age and health situation. How do you fully determine if this option is a good thing for you?
Every individual will have their own unique motivations for selling their life insurance for cash. However, there are some common reasons people consider a life settlement.

You no longer have beneficiaries

Perhaps your children or spouse who had been named as your beneficiaries have predeceased you, or they are no longer financially dependent. Maybe you no longer have concerns about your family’s need for funds and don’t have anyone else in mind to receive your death benefit.

You no longer have looming debt

Similarly, you may no longer anticipate great financial needs at the time of your death. Maybe you’ve worked hard to pay off your mortgage, you’re free of personal loans and credit card debt, and your children’s student loans for college tuition are paid in full. Likewise, you may find yourself over-insured, with more than enough coverage or money in your savings account to leave your family in a solid financial position.

You have present financial worries

Your current financial situation is more important than that of your beneficiaries would be after your death. Whether you’re facing a job loss, medical crisis, need for long-term care, or something equally expensive, you may have few options for funding. Using cash from your life insurance proceeds would be of great benefit to you.

Whatever your reason for considering cashing in on your term life insurance policy or other life policy type, feel free to reach out to a qualified life settlement company like SellMyLifeInsurancePolicy.com for more information.

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