Quick answer
A life settlement is a transaction in which a life insurance policyholder sells their policy to a third-party investor for a lump-sum cash payout that exceeds the policy's cash surrender value but is less than the death benefit. Most life settlements require the insured to be age 65 or older with a policy face amount of $100,000 or more. Typical payout is 20 to 40 percent of the death benefit. The buyer becomes the new owner, continues paying premiums, and collects the full death benefit when the insured dies.
Sell Your Life Insurance Policy Calculator
In the life insurance business, when a policy owner sells a policy it’s known as a “life settlement.” If you’re reading this, maybe you’re considering selling a policy you have. We’re here to offer information and help you if we can.
First, know that not every policy can be sold. Whether you can sell yours will depend on a few circumstances, as well as the policy itself. The most important factors a potential buyer will consider are your health, the amount of your policy, and your life expectancy.
By using our quiz, you can find out if your policy qualifies, as well as how much you might be able to sell it for.
In most cases, to sell your policy you’ll need to:
- Be older than 65
- Have a policy worth more than $100,000
- Have some health issue(s)
- Be a U.S. citizen
The type of life insurance policy you have will also make a difference.
The typical candidate for selling a life insurance policy is someone over the age of 65 who has a policy with a face value of more than $100,000 and whose health has declined since the policy was originally issued.
How the Value of Your Life Insurance Policy Is Determined
A potential buyer will take many different factors into consideration before making an offer to buy your policy. If your policy is eligible to be sold, you can expect to receive from 10% to 35% of the amount that would be paid when you die. In certain situations, you could receive more.
A few factors that will affect the amount you may be offered:
- The face value (coverage amount) of your policy
- Your life expectancy
- The amount of premium you pay
- The market rate of return
The chart below will give you an idea of how your health status can affect the amount you could receive for your policy.
| Health condition | Type of health condition | Value of policy |
|---|---|---|
| Very Healthy | No chronic conditions | Your policy doesn’t appear to be eligible for sale |
| Some Medical Issues | Chronic but manageable conditions, such as diabetes or hypertension | 10%-25% of the death benefit |
| Serious Medical Issues | Severe conditions, such as cancer or coronary artery disease | 25%-35% of the death benefit |
| Terminal | Irreversible conditions that severely reduce life expectancy, such as late-stage cancer | 35%+ of the death benefit |
When It Could Be Better to Sell Your Life Insurance Policy
We believe that owning life insurance is responsible; however, your life can change and so can your life insurance needs.
There may come a time when you no longer need your life insurance policy, such as when your kids are grown or you have outlived your spouse.
Being able to sell your policy in those instances - rather than canceling it - is definitely a better financial decision.
| Gender | Male | Female |
|---|---|---|
| Age | 59 | 65 |
| Type of Policy | Whole life | Universal life |
| Health | Moderate | Severe |
| Coverage | $200,000 | $100,000 |
| Possible Value: | Up to $70,000 | Up to $50,000 |
When It’s Better to Hold On to Your Life Insurance Policy
Selling your life insurance doesn’t always make sense, and in some cases you can’t, even if you wanted to.
If the reasons you purchased your life insurance are still in place, such as having young children, then you’re much better off keeping your policy in place.
If selling your policy makes sense, then you must still meet certain requirements to qualify. Your age, your health, and the type of policy you have all factor into whether you’ll be able to sell your policy.
| Gender | Male | Female |
|---|---|---|
| Age | 45 | 85 |
| Type of Policy | Term life | Universal life |
| Health | Good | Severe |
| Coverage | $250,000 | $100,000 |
| Possible Value: | Does not qualify | $50,000+ |
- Answer a few simple questions.
- Get an instant online estimate.
Free instant quote
See what your policy could be worth
Answer a few simple questions and get an instant, no-obligation estimate from a licensed Insurancy specialist.
Get StartedCan You Sell Your Term Life Insurance Policy for Cash?
Insurancy is here to help you get insured. But when that insurance loses its usefulness, we can help you turn it into cash. We’ll help you find out if your policy qualifies, and we’ll make sure you get the most cash possible if you decide to sell.
Life Settlements Are a Big Business
The life settlement business has exceeded experts’ forecasts. For example, a 2016 report by Conning, a company that does insurance research, predicted annual growth in life settlements of 1%-2%.1 But the market has done far better, yielding growth rates of 34%, 50%, and 19% for 2015 through 2017.2
That same Conning report predicted that life settlements would have an average annual volume of $1.8 billion, but a report released in June 2018 showed the previous year’s volume was $2.83 billion.3
And while the Conning report forecasted transactions of about $1.7 billion in face value in 2016,4 the actual amount transacted that year was $2.5 billion.5
Reasons for Selling a Life Insurance Policy
People consider selling their life insurance policies for a variety of reasons. Here are a few situations in which you might be thinking about it as an option:
- You need cash for retirement.
- Your premiums are no longer affordable.
- You need funds for long-term care.
- You need financial help to pay for your medical bills.
- You sold a family business, or the owner retired and the insurance is no longer needed.
- You are overinsured.
- You no longer have beneficiaries.
- The term of your policy is expiring.
Types of Settlement Offers
Not all life settlements are alike. If your policy qualifies to be sold, you might choose to do a straight-up cash deal. But there are other options that might be better, depending on your situation.
Cash Offer
A lump sum of cash is offered in exchange for the policy.
Retained Death Benefit
With this type of offer, the policy owner retains a portion of the face amount of the life insurance policy. That amount can be irrevocably designated to a beneficiary chosen by the policy owner. This type of offer is usually higher than a cash offer because the amount is not paid out until the policy matures. With this type of offer, the policy owner does not have to pay premiums for the retained amount of life insurance.
Hybrid Offer
A combination of a cash offer and a retained death benefit can be used to maximize the policy’s value to the policy owner. In some cases, the best option could be a cash offer to help pay for expenses, along with a $50,000 retained death benefit to cover final expenses.
Before You Sell, Check Your Policy’s Riders
An accelerated death benefit rider can provide living benefits similar to selling your policy. In the case of a terminal or chronic illness, the rider may pay out a portion of the death benefit early.
Alternatively, a return of premium life insurance rider gives the premiums paid into the policy back at the end of the return period.
Check to see if your policy has either of these riders, as they could affect the amount you would receive in a life settlement.
The Process for Selling a Policy
- It begins with an application
Once you know that your insurance policy is eligible to be sold, the next step is to complete a life settlement application. The application will allow the party that is handling the transaction to order the required documentation. It also includes the required disclosures and authorizations that potential buyers will need to evaluate your case.The broker or company that handles your life settlement will pay the costs of gathering your medical information and several other steps involved in the sale, such as verifying coverage and obtaining life expectancy reports. Those costs, which can exceed $1,000, become part of the amount the buyer pays for your policy.Sometimes there are custom authorizations that need to be signed during the documentation-gathering step. That can lengthen the process. - Then it goes through underwritingOnce the required documents have been collected, they go through an underwriting process. Medical summaries and life expectancy reports are created based on the medical documents that are received. Cost of insurance projections are run based on the insurer documents obtained. These underwriting documents are then used to determine how investors will price your life settlement case and what offers they will make.
- Finally, there’s the closing ProcessWhen you accept an offer, the closing process begins. A closing firm, typically a provider, will generate the contracts to be signed, including disclosures, authorizations, and releases. Parties that must sign the contracts include:
- The policy owner (you, or your trustee or authorized representative)
- The insured (if that’s someone other than you)
- Your beneficiary (individual, trustee or authorized representative)
- Your spouse (if applicable)
Once the contracts are signed and returned to the closing firm, all of the paperwork is reviewed. If everything is in order, the buyer places the purchase funds in escrow.
After escrow confirms that funds have been received, the buyer is given the insurer change forms (which you have already signed) to sign. The signed ownership and beneficiary change forms are then submitted to the life insurance carrier for processing.
Usually, within three business days of insurer confirmation letters being received (showing that the ownership and beneficiary have changed), the funds are paid out. Depending on which state you live in, you might have a rescission period in which you can back out of the transaction. When that rescission period is over, the remaining escrow amount is released to pay for closing fees, broker commissions, and referral fees
Can you sell your term life insurance policy for cash?
Insurancy is here to help you get insured. But when that insurance loses its usefulness, we can help you turn it into cash. We’ll help you find out if your policy qualifies, and we’ll make sure you get the most cash possible if you decide to sell.
Free instant quote
See what your policy could be worth
Answer a few simple questions and get an instant, no-obligation estimate from a licensed Insurancy specialist.
Get StartedFrequently Asked Questions
Can you sell your life insurance policy?
Yes. You can sell your life insurance policy to a third-party investor through a transaction called a life settlement (for relatively healthy insureds) or a viatical settlement (for chronically or terminally ill insureds). The buyer becomes the new owner and beneficiary, continues paying premiums, and collects the death benefit when the insured dies. Both term and permanent life insurance policies can be sold, subject to underwriting.
Who qualifies for a life settlement?
Typical eligibility requirements: (1) insured age 65 or older (some buyers go down to 60 with serious health conditions, or up to 70 minimum), (2) policy face amount of at least $100,000, (3) policy has been in force for at least 2 years (past the contestability period), (4) the insured is willing to provide medical records for life-expectancy underwriting, (5) the policy is a "settlement-eligible" type (most term, whole life, universal life, and indexed universal life policies qualify). Group employer life policies typically do NOT qualify.
How much can I sell my life insurance policy for?
Typical life settlement payouts range from 20 to 40 percent of the death benefit for healthy insureds age 65+, with higher percentages for insureds with deteriorating health (40 to 70 percent). Payout is determined by (1) life expectancy assessment, (2) policy type and remaining premium obligations, (3) policy face amount, and (4) the buyer's discount rate. A $500,000 policy on a healthy 75-year-old might fetch $100,000 to $200,000; the same policy on a 75-year-old with health issues might fetch $200,000 to $300,000.
When should I sell my life insurance policy?
Consider selling if: (1) the original need for the coverage has ended (dependents grown, mortgage paid, business sold), (2) the premiums have become unaffordable in retirement, (3) you need cash for medical care, long-term care, or other immediate expenses, (4) you would otherwise let the policy lapse or surrender it for the much-lower cash surrender value. According to the Life Insurance Settlement Association (LISA), policies are too often abandoned at zero value when a life settlement could have produced substantial cash.
When should I NOT sell my life insurance policy?
Do not sell if: (1) your beneficiaries still need the death benefit (the primary purpose of life insurance), (2) the policy has a chronic illness or critical illness accelerated benefit rider that can be exercised at no cost, (3) the policy is held inside an Irrevocable Life Insurance Trust (ILIT) for estate planning, (4) you have decades of life expectancy remaining (your payout percentage will be too low), (5) you are within the 2-year contestability period (no buyer will offer). Always weigh the alternatives before selling.
Can I sell a term life insurance policy?
Yes, if the term policy has a conversion privilege that has not yet expired. The buyer will typically convert the term to a permanent policy (whole life or universal life from the same carrier) before holding the asset. Term policies WITHOUT a conversion privilege are generally not saleable because the buyer would lose the asset when the term expires. Always check your policy's conversion deadline and eligible-products list before pursuing a sale.
Are life settlement proceeds taxable?
Partially. The IRS treats life settlement proceeds in three tiers: (1) the portion equal to your premium basis (total premiums paid) is tax-free, (2) the portion between basis and cash surrender value is taxed as ordinary income, (3) the portion above cash surrender value is taxed as long-term capital gains. For viatical settlements (terminally/chronically ill), the entire payout is tax-free under IRS Section 101(g). Consult a CPA before closing a life settlement.
How long does a life settlement take?
Typical timeline: 60 to 120 days from application to wire transfer. Phases: (1) Application and medical-records collection: 2 to 4 weeks. (2) Life-expectancy underwriting by an independent provider: 2 to 4 weeks. (3) Auction or solicitation of offers: 2 to 4 weeks. (4) Negotiation and closing: 2 to 4 weeks. Some sales close faster (30 to 60 days) when the policy is straightforward and the medical records are immediately available. Plan for at least 90 days total.
Are life settlements regulated?
Yes, by state insurance departments. Most states have adopted versions of the NAIC Life Settlements Model Act or the National Conference of Insurance Legislators (NCOIL) Life Settlements Model Act. These laws license life settlement providers (buyers), license life settlement brokers (the seller's representative), require disclosure of all offers received, give the seller a cooling-off period to rescind the sale (typically 15 days), and require verification of medical condition by an independent third party. Always verify state licensing before engaging.
Should I use a life settlement broker?
For most sellers, yes. A licensed life settlement broker represents the SELLER (not the buyer) and is paid a commission of typically 5 to 8 percent of the settlement amount. The broker solicits competitive offers from multiple licensed providers, which typically increases the final payout by 20 to 40 percent compared to negotiating with a single provider directly. The Life Insurance Settlement Association (LISA) maintains a directory of broker members.
Will selling my policy affect my Medicaid eligibility?
Possibly. A lump-sum life settlement payout may be counted as income or assets for Medicaid eligibility purposes (Medicaid is a state-federal program for low-income individuals and is the primary payer for most U.S. long-term care). Receiving a large lump sum can disqualify you from Medicaid for several months. If long-term-care funding is part of your motivation for selling, consult an elder law attorney before closing to structure the transaction (e.g., into a Medicaid-compliant annuity or special needs trust) to preserve eligibility.
What is the Insurancy Sell Your Life Insurance Policy Calculator?
The Insurancy Sell Your Life Insurance Policy Calculator estimates the cash value you could receive from selling your life insurance policy based on your age, health, policy type, face amount, and premiums. It is a planning tool to help you decide whether to pursue a formal life settlement offer. Actual offers depend on detailed life expectancy assessment and policy underwriting; treat the calculator output as a starting point, not a binding quote. Insurancy can connect you with state-licensed life settlement brokers to obtain real offers.
