Can You Sell Your Term Life Insurance Policy For Cash?

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Term life insurance is a type of life insurance policy that is only valid for a certain period of time. And, unlike a permanent life insurance policy, you might end up getting nothing if the term expires before the owner dies. But, can you sell your term life insurance policy for cash? 

It is possible to sell your term life insurance policy for cash. However, if it’s the type that you can convert to a universal or whole life policy, it will normally be worth a lot more in the marketplace. These are called convertible insurance and are far more valuable for their flexibility. 

In this article, I will clear up all of your confusion regarding whether you can sell your term insurance or not. And we’ll take a look at some of the key differences between a whole life insurance policy, universal life policy, and term life policies.

But I’ll also go over a few other things that might be helpful for you. Read this article until the end to find out everything about selling your term life policy.

How Does Term Life Insurance Work?

If someone gets a term life insurance policy, the insurance provider guarantees that the beneficiaries will get a predetermined amount if they pass away during the policy’s term. In return, they owe the corporation a monthly fee for the duration of the contract.

When applying for a term life policy, you will have to decide what policy type is best for you and how much of a death benefit you want.

First of all, you must fill out an application that may include a medical test. Then, you have to pay premiums depending on the insurance company’s estimate of your life expectancy over the course of that time.

And you risk the policy being canceled if there is a policy lapse in payments.

After you die, your insurance will cover your beneficiaries in most cases. However, there are a few exclusions you must be aware of. Now, let’s get into the details of how term life insurance works:

#1. It Is a Written Contract

Term life insurance is usually a contract between the policyholder and an insurance agent. The owner agrees to pay the premium for a set period (generally, around 10 to 30 years).

In exchange, the insurer guarantees that the beneficiaries will receive a certain amount of benefit if the policy owner dies. Generally, this advantage is tax-free.

#2. You Have to Choose the Type Of Policy

Even though every term policy covers you for a set length of time, certain types exist. The following table shows the different types of term life insurance policies:

Types of Term Life Insurance Description
Level Term Life Insurance The majority of policies have confirmed level premiums. It means your monthly premium payments will stay the same throughout the term.

It might be the perfect option for you if you would like the comfort of knowing that your premiums will never alter.

Annual Renewable Term One-year term insurance is the most basic type of term life policy. If the policyholder dies during the term of 1 year, the insurer will pay the death benefit.

Otherwise, the beneficiaries won’t get anything. You may renew the policy at the end of each year.

Generally, if you have a terminal illness, it is not good to go with this policy.

Group Life Insurance This one is provided as a perk at work. Your company might pay for insurance. However, you may end up losing your life insurance coverage if you quit the job.

Usually, you won’t have to take a medical test for this type of term policy.

Convertible Term Life Insurance This policy lets you convert your term life insurance coverage to a permanent policy.
Return-of-Premium Term Life Insurance If someone doesn’t die during the policy term, the insurer will refund their premium payments.

It might be a good option for you if you want a huge amount of money back at the term’s end.

Mortgage Protection Term Policy When you die, this insurance covers your mortgage. This term policy guarantees that your family members will inherit the family property clear and free.

Well, you have to keep in mind a few things before choosing the best term insurance option for you. Consider the term and how much coverage you want, whether you prioritize a low initial cost or predictability, as well as your monthly premium budget.

#3. Application Process

When someone applies for term life insurance, they must provide some information. For example, medical records, gender, age, etc.

Most insurance companies let you submit online applications. But you might need to go in person for a medical test.

Before issuing your insurance, the provider must determine how big of a threat you pose. It is referred to as the “underwriting” procedure. They’ll usually request a medical test to assess your health, as well as information regarding your job, habits, and other factors.

They may consider some hobbies, such as scuba diving, hazardous to one’s health, which may cause rates to rise. Dangerous work conditions, such as an oil rig, may significantly increase your insurance costs.

#4. The Death Benefit

The amount your beneficiaries would get from the insurance company when you die within the policy’s term is the death benefit. You have the option of choosing your beneficiaries. It’s usually a family member, a business associate, or someone else who relies on you.

#5. The Term

The essence of term insurance is that it’s only valid for a set period. This insurance policy offers a variety of coverage options with varying lengths of coverage. The insurance will terminate once the term expires.

#6. Exclusions

Although a term insurance policy is intended to provide a death benefit if you die, numerous policies have exclusions. For instance, if you commit suicide or die due to participating in illegal or risky activity, your policy won’t cover it.

However, one must carefully study the policy conditions since exclusions differ from one insurance company to the other.

How Convertible Insurance Works

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Well, if you buy convertible insurance, you may convert it at any time without having to undergo another medical evaluation to assess your health status.

As you alter your insurance, its face value usually stays the same. Yet, your premiums would go up because of the permanent new coverage’s cash-building advantage.

A conversion rider is the term life insurance policy provision that allows you to convert. It will usually impose a time frame for converting your insurance. Typically, until your term insurance expires, as well as an age limitation of 65-70 years.

A life settlement, or selling the policy for cash, is feasible once you convert the term life insurance to a permanent one. The seller gets a cash value greater than the cash surrender amount of the policy. But it’s far less than the policy’s death benefit.

Whenever the insured individual dies, the buyer is responsible for further premium payments and gets the death benefit of the policy.

How To Sell Your Term Life Insurance Policy

To sell your term life insurance policy, you will simply have to hire a life settlement broker and seek a life settlement company. Then, you have to give documentation, analyze offers, and accept the offer that benefits you most. This way, you can get the most from the exchange.

Selling your term life insurance is quite an easy process. Here is a step-by-step guide for you to sell your term life insurance policy:

Step 1: Hire a Life Settlement Broker (Optional)

Life settlement brokers are state-licensed individuals who act as mediators between policyholders and life settlement providers. They negotiate life settlements on your behalf. Besides, they help you organize your medical documents and ensure that you receive the highest potential settlement.

Although hiring a life settlement broker is extremely beneficial, remember that they take a fee from your death benefit. And it can be a significant sum for big policies. However, if you still choose to work with one, do your research beforehand to verify them.

Step 2: Locate a Life Settlement Company Near Your Region

Well, if you hire a life settlement broker or a third party, they may do this step on your behalf. You must find the company and let them know you would like to sell a policy. Generally, these companies will accept convertible term life insurance policies.

Step 3: Provide the Company with Necessary Paperwork

The company will request the relevant papers to assess your circumstances and calculate the market price of your insurance. They will generally require a photocopy of your life insurance policy, as well as your current medical records.

Step 4: Analyze Your Offer

Potential buyers would decide on a rate for the insurance and then offer you. You can accept or decline it at any time, with no expense or obligation.

The offering will usually be 2 to 3 times the amount of your policy’s cash value. You may also use a life settlement calculator to evaluate your offer.

Step 5: Transfer the Ownership

If you like the offer, you can accept it and transfer the policy’s ownership to the company.

Or else, you have the opportunity to look into different life settlement agencies. Well, you will stay on the insurance as the policyholder even though you are no longer the insurance owner if you accept the offer.

After that, you’ll get a cash payment depending on the amount of coverage and a few other things. Also, you can use it in any way you like and fulfill your immediate needs.

How to Sell Your Life Insurance Policy

Final Thoughts

So, in short, you can sell your term life insurance policy for cash if it is the convertible type.

But it is wise to convert the insurance to a permanent policy before selling it if you want to get more cash. Also, be sure to analyze the market before actually selling for maximum returns.

By now, you’ve got your answer to the question about selling the term life insurance policy for cash. 

However, remember that it is always best to seek advice from your financial advisor before making any decisions regarding your insurance. So, be sure of your every move and don’t rush any steps.

Image by mohamed Hassan from Pixabay and Image by Pete Linforth from Pixabay

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