Many people across the country often wonder if it’s possible to sell their term life insurance policy. Not only is it possible, but it can provide much-needed monetary relief for many Americans who may be facing financial hardships.
We’re here to walk you through the details and clarify what goes into selling a term life policy. Unfortunately, being able to sell the policy is not a cut and dry, yes or no answer, but we’ll share what the process is and what options may be available.
How To Sell Your Term Life Insurance Policy For Cash
Selling a term life insurance policy for a cash payment is possible if your policy is convertible into permanent life insurance. Once converted, a life settlement provider can then make an offer based on your age, health, type of insurance, premiums and death benefit. People 65 or older can typically sell their life insurance policy as long as the face value of the policy exceeds $100,000.
Many life insurance companies allow you to add a conversion rider to your term policy when you first buy it — sometimes at an extra cost.
The reason for this is that term life insurance is temporary, with periods ranging from five to 40 years. While that might be fine for some people, a conversion rider helps you plan for the future.
For example, if you develop a serious medical condition or terminal illness, you may want your life insurance to offer a lifetime policy benefit rather than a benefit with an expiration date. A viatical settlement can help people dealing with a terminal illness who need to extract cash from their life insurance policy. Or, you may want to convert down the line to take advantage of a permanent policy’s cash value benefits.
If you bought your term policy years ago, you might not know whether your policy is convertible or not. To find out, check your original policy documents. If you don’t have those, you can call the agent or insurance company directly and have them check for you.
How a life insurance settlement works
The average payout in a life settlement is 22% of the policy’s face value. That said, it can range between 10% and 50% depending on various factors, including your age, life expectancy, and policy details. Keep in mind — if you have an unconverted term policy, you will get nothing when the policy expires.
Alternatively, converting your term policy to a permanent policy and then selling it to a life settlement provider can be a great way to turn your term life insurance into the cash you need. A life settlement broker can provide a fair assessment of your policy’s cash value and allow you to make the decision if you want to keep your policy in force.
Which life insurance companies offer term conversion?
Most life insurance companies offer a conversion rider, but not all of these riders are created equal. The biggest issue you might run into is that you had a conversion rider on your policy originally, but it has since expired. The age limit on conversion can make it difficult to sell a term life insurance policy.
Many life insurance companies don’t allow conversion after age 70, but the age varies depending on the carrier. State Farm, for instance, allows you to convert your policy to whole or universal life until age 75. And TIAA Life allows you to convert your policy at any point during the initial term, regardless of your age.
So, when you’re looking at your policy documents or checking with the insurance company, make sure you find out what kind of restrictions the rider has. If you’re coming up on the expiration date, it is particularly important to understand all of your options.
Does converting make sense?
Just because your term insurance policy has an active conversion rider does not mean that you should sell your term life insurance policy. First, you should make sure that you qualify for a life settlement. You can do that in less than a minute with our life settlement calculator.
Next, you should make sure that your policy doesn’t have any other riders that you could potentially take advantage of. The two riders to be particular aware of are accelerated death benefit and long-term care.
An accelerated death benefit rider allows you access to a portion of your policy benefit if you’re terminally ill and have been officially diagnosed with a shortened life expectancy, usually two years or less.
A long-term care rider helps you pay for the expenses associated with long-term care with if you cannot perform two of the six activities of daily living or you suffer from a severe cognitive impairment.
If your policy doesn’t have either of these riders, or receiving cash now outweighs their benefits, a life settlement is a good option to consider.
The bottom line
If you have a convertible term life insurance policy and need cash to supplement your retirement income, pay medical bills, or pay for long-term care costs, you should consider converting your term life insurance policy and engaging in a life settlement.
As always, consult with your insurance agent or trusted adviser in handling these important matters. Getting rid of a term life policy you no longer need is a delicate matter, and as the policy owner you should be aware of all the options that exist at your disposal.
Want to learn more about life settlements? Check out our page on selling your life insurance policy.