Sell My Life Insurance Policy
Welcome to Life Settlement Option, a broker solution where we help policy owners understand the life settlement market, and represent them in the marketplace to seek out the best offer. In this article I'll answer the common question - can I sell my life insurance policy? I'll also provide the steps involved in the process, and how our broker can help find you the highest bidder for your policy.
Can I Sell My Life Insurance Policy?
Getting started with the basics, a life settlement is the term used when an individual sells their life insurance policy to a third party for a lump sum valued greater than the cash surrender value of the policy and less than the death benefit. The 3rd party that purchases your policy assumes all future premiums and becomes the beneficiary of the death benefit. A Viatical is the same type of arrangement, but the term is typically used for people who have less than 2 years to live or are in a long term care situation and need capital to pay long term care expenses.
In order for you to sell your policy it needs to meet certain requirements for it to qualify for a life settlement. Learn more about how to sell life insurance policy.
Selling your life insurance policy is a major financial decision. If you’re considering selling your policy you should carefully evaluate the benefits involved and the alternative options available. (2)
Sell Life Insurance Policy
The basic requirements for a life settlement are that the insured is age 65+ and the death benefit is $100k+. If the insured has been diagnosed with a terminal illness they are eligible at any age.
The most common types of policies that are purchased are Universal Life or Whole Life policies. Second to Die policies are also common, and surprisingly Term Policies are too as many are convertible to whole life and universal life policies.
Every case is unique as the premiums can vary greatly from one policy to another, and not every policy will get an offer for a settlement, but there's no cost to test the market, so we always encourage you to take the first step and at least get a free appraisal. There's no obligation to pursue the market further or accept an offer if we receive one. Since we see a lot of different cases we can also tell pretty quickly if a case will get any interest.
When clients first start learning about life settlements, their expectations can become a bit unrealistic. Most consumers think only of the death benefit on a policy and not necessarily what it costs to get there, so when they have a $500k policy they might assume they can get a settlement near $500k, but unfortunately it doesn't work that way.
the basic concept of insurance is quite simple, many of the details of life insurance can seem complex. (1)
What Does an Investor Look For in Different Situations?
When an investor reviews a case, they're trying to understand how long someone is likely to live, and compare that with the future cost of premiums. In order to come up with the length of time someone is likely to live, underwriters review recent medical records to understand what health concerns the insured is currently facing. There is no medical exam or interview, so the only piece that matters are your medical records. If you haven't been to the doctor in a long time it would be a good idea to make an appointment before applying for a life settlement. Alternatively, some groups can make an offer off a medical questionnaire, but you might be leaving money on the table if you don't have your records reviewed. We always say the more records the better, so long as they're relevant and document any significant concerns. An investor also has to consider the time value of money, and factors in an annual interest rate they need to make back in order for the investment to make sense.
When a 65 year old has no health concerns and is considered very healthy, there's nothing that says this person will not live another 30+ years, even if their parents died much earlier than 100. Of course that could change, but right now that's all they have to go on to determine the level of risk involved by purchasing a particular policy. On the contrary, someone who is facing specific health concerns that are documented by a doctor has a more predictable life expectancy at this stage. It's important to remember these are just numbers and nothing is in-fact. After someone sells their policy, sometimes an insured will pass sooner than expected while other times they will live longer than expected. The investor has to balance these risks by creating large portfolios of policies as some will ultimately be better investments than others.
Once people realize the length of life expectancy plays a big factor in how much they get in a settlement, they assume life settlements are only for the terminally ill, but this is not true. Yes, it's true that the shorter your life expectancy the more money you're likely to receive, but it also means the investor has to spend more money upfront to win the case. Because of this, the 5 - 10 year life expectancies get a lot of interest, and we even see offers in the 15 - 20 year range too. Beyond 20 years becomes a bit too long for an investor to wait to get their investment back, which is why 65 or even 70 is considered the cusp of consideration. Plenty of Americans have health concerns by this age, so it's always worth trying the market.
Can You Sell a Term Life Insurance Policy?
Term life insurance is the most popular type of life insurance, so as a broker I get a lot of clients who ask - can you sell a term life insurance policy?
The short answer to this question is yes, sometimes you can. in order for your term policy to qualify it still needs to be "convertible". What most term policy owners don't know or tend to have forgotten is that their term policy is convertible into a permanent life policy such a universal life or whole life policy, and there's a deadline for which you can do this.
Converting a term policy means your insurance carrier will automatically issue you a new permanent life insurance policy using your original health rating from your term policy regardless of what health declines you've had since. Your original contract will have a "conversion deadline" or "conversion period" identified in it to tell you when that deadline is. If you don't have your original contract you can simply call your carrier and ask if your policy is still convertible and ask when the deadline is. Sometimes the deadline to convert is the end of the term, sometimes it's by a certain age.
If you find out your policy is still convertible then we can move to the next step of ordering a conversion illustration and medical records, which we will bring to market and see what kind of interest we get. What you don't want to do is convert your policy yourself and then try to sell it. Some carriers will offer several different conversion options, and tend to push people towards the more expensive options. Investors aren't interested in accumulating cash value, they simply want to keep the life insurance in-force. You could be leaving money on the table if you convert it yourself before working with a broker to test the market.
Sell Life Insurance Policy
A life insurance policy is considered an asset, which can be sold to a 3rd party, just like real estate. You do have the option of trying to get offers yourself if you know where to go, but just like listing your home for sale by owner, unless you're an expert in real estate, chances are you will leave money on the table by trying to save a few bucks listing your own home. And same goes for the life settlement market. Unless you're an expert in this marketplace, you'll likely leave money on the table by trying to do it yourself, and it could be significant.
One the same case, some investors will not make any offer, while another offers $25k. Then another group offers $40k, and ultimately we settle at $65k. If someone tried this case themselves they may have been happy with the $25k, or may not have received any offers at all. It's always advised to get multiple offers and our job as brokers is to present your case to a wide variety of investors in search of the highest offer. We work for free until you accept an offer, and the buyer pays our commission at the close of escrow, just like in a real estate transaction.
If you're thinking about selling your life insurance policy, here's what the process looks like:
Review your policy details with our team to see if your case qualifies, and determine how much we think it may be worth
We'll help you order your medical records for underwriting, as well as an in-force illustration
Once we've gathered necessary information we will bring your case to market
Investors will spend a couple weeks reviewing underwriting and getting approval on their offers
Once we have multiple bids in we begin the negotiation process
When we feel that we've reached the top of buyers' interest we decide whether or not to accept an offer
If you do accept an offer, the deal goes into an escrow process with contracts issued and legal due diligence done
Ownership of the policy and beneficiary change to the new owner
Once everything is satisfied, the funds are released to you via check or wire transfer from the escrow account
We recommend working with a life settlement broker when you're interested in getting life settlement offers. Our firm takes a dedicated approach to each individual case, and have had a high success rate in getting offers for clients where another broker couldn't.
The amount of time it takes to sell a life insurance policy is somewhat dependent on you and your level of motivation, but it can take several months from start to finish. The average length of time is about 3 months. You may be considering a potential sale 6 months out, or you may want to sell this policy as soon as you can. If you're not quite sure if you'll need to sell yet, we can begin heling you to prepare in case you do. When you're ready, we can bring your case to market quickly and start getting bids back within a couple weeks. Unless you are years away from wanting a settlement, we should get started now.
The best way to get started would be to fill out the appraisal form on this page, or give us a call at 213.784.1481. Avoid letting your policy lapse and get started today.
4 years in life settlements