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Can I Sell My Life Insurance Policy? | Quotacy Q&A Fridays - YouTube
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Welcome to Quotacy's Q&A Friday
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where we answer your life insurance questions.
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Quotacy is an online life insurance broker
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where you can get life insurance on your terms.
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I'm Jeanna and I'm Natasha.
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Today's question is:
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can I sell my life insurance policy?
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Depending on the type of life insurance you own,
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there may be a few options for you to consider.
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These options include selling your policy for a viatical settlement,
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selling your policy for a life settlement,
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accelerating a portion of your policy's death benefit,
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taking out a loan against your policy's cash value,
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and surrendering your policy for its cash value.
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Today, Jeanna and I will go over the requirements
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of each option and their pros and cons.
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You can sell your life insurance policy for cash to a
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viatical settlement company if you are terminally or chronically ill.
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A viatical settlement company pays you a lump sum
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worth 60 - 80% of the death benefit and then they become the owner of the policy.
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They pay the remaining premiums and collect the full death benefit
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from the insurance company when you die.
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The positives are going with a viatical settlement are
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that you no longer are responsible for paying the premiums,
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you receive a relatively substantial sum,
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you can use the money however you wish,
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and the viatical companies are regulated by
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the National Association of Insurance Commissioners.
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A viatical settlement option is only available to you
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if your life expectancy has severely diminished.
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Your intended beneficiaries also now no
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longer receive a death benefit.
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And since the policy is still active on you,
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just no longer owned by you,
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if you wanted to later on purchase more life insurance
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you would be limited as to how much coverage you could buy.
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In addition, to viatical settlement companies
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there are life settlement providers out there that
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buy life insurance policies from people who just simply
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don't want to own them anymore.
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You do not need to be dying to sell your policy
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for a life settlement.
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With a life settlement, the buyer pays more
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than the policy's cash surrender value
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but less than the death benefit.
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The buyer owns the policy, pays the remaining premiums,
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and collects the full death benefit when you die.
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The positives to a life settlement are similar to that
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of a viatical settlement.
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You're no longer responsible for paying the premiums,
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you receive a relatively substantial sum,
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and you can use the money however you want.
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Most states require policyowners to wait at least two years
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before they can sell a policy for a life settlement.
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You may also want to shop around
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or work with a life settlement broker to ensure you
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receive a fair price.
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And similar to the negatives of a viatical settlement,
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your intended beneficiaries no longer receive the death benefit.
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You are also limited to future amounts
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of life insurance coverage you can purchase on yourself.
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In the 80s, life insurance companies created living benefits
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so that terminally ill policyowners would not be forced
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to sell their life insurance policies if they needed money.
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These living benefits are provided
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by accelerated death benefit riders.
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Most insurance companies include an accelerated death benefit rider
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on their life insurance policies for no charge.
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With this rider, a terminally ill policyowner
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can withdraw a portion of their policy's death benefit
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to use however they wish.
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The positives of going with an accelerated death benefit option
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include the fact that you are only dealing
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with the insurance company versus a third party.
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You still own the policy and have control over it.
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Your beneficiaries can still receive any
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remaining death benefit when you die,
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and this option is available for both
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permanent and term life insurance policies.
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Unfortunately, the option to accelerate the death benefit
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is only available if your life expectancy has severely diminished.
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Since you still own the policy
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you are required to keep paying the premiums
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if you want to keep the policy active.
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And the amount you accelerate and use is subtracted from
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the proceeds your beneficiaries will ultimately receive.
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If you own a life insurance policy
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that accumulates cash value, such as a whole life insurance policy,
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you have the option of taking out loans against it.
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As with any other loan,
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the balance accumulates interest until it's completely paid back.
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You are not required to pay back the loan while you are alive
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but, if you don't, whatever balance remains plus the interest
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will be taken from your beneficiary's death benefit.
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You need to be careful if you take out policy loans.
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If the loan amount plus interest ever exceeds your policy's cash value,
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your policy will terminate.
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And if the total amount of premiums you've paid is less
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than the loan balance at termination,
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then you may receive a tax bill from the IRS on the difference.
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The positives to taking out a policy loan include
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the fact that you're only dealing with the insurance company,
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the loan is also confidential and won't show up on your credit report,
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and the loan is tax free unless the termination issue comes up.
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You're still in control of the policy
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and your beneficiaries still receive a death benefit if you die
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pending your loan plus interest doesn't eliminate it.
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You still need to keep paying your policy premiums
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if you want to keep your policy active.
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And if you have a participating whole life insurance policy
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the loan might reduce the dividends you can gain.
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Life insurance policy loans can be beneficial
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if you're in need of quick cash but you need to be vigilant
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in monitoring the interest so that your beneficiaries
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aren't left with the tax bill.
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Or pay back the loan while you're alive as soon as you are able to.
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If you own a permanent life insurance policy,
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you have the option of surrendering the policy for its value.
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This option is not available to term life insurance policyowners.
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The benefits of this option include the fact
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that you're only dealing with the insurance company
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and you'd no longer be responsible for paying the premiums.
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And you can use the cash however you wish.
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It's important to note that many insurance companies
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do not grant cash surrenders until after a certain number
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of years have passed, typically three.
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Also, there may be a surrender fee depending
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on how long you've had the policy.
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The longer you've owned the policy,
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the lower the fee amount.
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If you have a policy loan out,
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this amount plus interest will first be deducted
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from the surrender value before you receive it.
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And if the surrender value is more than the total amount premiums
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you've paid so far, the difference is considered income and taxed.
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A policy surrender can be a good option
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if you no longer need life insurance.
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For example, if you're comfortably retired and
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your children are grown and financially independent,
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then surrendering the policy for its value may be a nice
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supplement to your retirement funds.
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It's advisable that you talk to your agent
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if you're considering one of these options.
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Depending on your particular situation
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one option may be much more suitable than another.
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Thanks for watching.
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If you have any questions about life insurance,
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make sure to leave us a comment.
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And if you have any questions regarding today's topic,
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check out the blog link posted below.
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And if you're ready to get quotes,
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check out Quotacy.com.
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We're here to help you find the best deal
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on the life insurance you want.
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Bye!
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hit that fancy little Subscribe button to see us every week.
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