Whether you buy a term life or permanent policy, life insurance is typically something people own for the long haul. But what happens if you can’t keep up with premiums or decide you don’t need it anymore? Can you sell a life insurance policy?

Every year, people over 65 lapse over $100 billion in life insurance, often because they don’t realize they can sell unwanted or unaffordable policies, according to the Life Insurance Settlement Association (LISA).

In some cases, however, it is possible to sell your life insurance policy. Here’s how it works.

How to sell your life insurance policy

The process of selling your life insurance policy is called a “life settlement” or, in some cases, a “viatical settlement.” This is different from “surrendering your policy,” which is when you work directly with the insurance company to deactivate a permanent policy and often receive a portion of its cash value.

Instead, a life settlement refers to selling an existing policy while still keeping it active.

In other words, the transaction involves giving up the ownership of the policy to a third-party buyer for a cash payout. The buyer will then continue making premium payments on the policy to keep it active. When you die, they (now the new policyowner) will collect the full death benefit.

The policies most commonly sold are universal and whole life, types of permanent insurance. But you can sell other kinds as well, including selling your term life insurance policy. Your policy should also be worth at least $100,000 to be considered desirable for potential buyers.

There are typically two ways to sell a life insurance policy:

• Directly to a buyer, although it’s very rare to find an individual who will buy an existing policy
• To a broker or settlement company that specializes in finding third-party buyers for policies

The closer you are to your life expectancy, the more likely it is that you’ll be able to sell. Buyers typically purchase policies from people over age 65, but younger people may qualify to sell if they have a serious medical condition.

Some factors that will influence the price include your age, health condition, type of policy, and the amount you’re currently paying in premiums.

Here’s a quick overview of how the process works:

• You provide details like policy information and your medical records to a potential buyer, broker, or settlement company.
• Potential buyers check your information, and the broker may shop the policy around to gauge interest before making you an offer.
• You sell and the buyer takes over the policy, making premium payments in your name.
• Once you die, the buyer collects the full policy payout to use however they wish.

The buyer may also check in with you periodically after the sale to confirm that you’re still alive, since they’ll now be responsible for maintaining the policy until after your death.

According to LISA, you can expect to receive an amount equal to 10% to 25% of the death benefit policy face value. For example, if you have a policy with a $500,000 payout, you would likely be paid $50,000-$125,000.

Commission fees are often part of the selling process, which can get pricey, so make sure to factor those into any estimates. You’ll also need to pay income taxes on the money, unlike with a death benefit, which is generally tax-free.

Why would you sell your life insurance policy?

In some cases, you just might not have a need for your policy anymore. If you bought it when you were younger and had a mortgage, debts, and other financial responsibilities, you may not need the protection once those have been paid off.

Before you commit one way or another, though, make sure to think about your personal finances and your current and future needs, including a funeral or other end-of-life costs, that could be covered by your policy.

If you’re having trouble keeping up with premiums for a permanent policy, selling it can also help you get value out of the plan instead of terminating it.

Just remember: If you sell, your loved ones will no longer have the financial safety net of life insurance after you’re gone. Make sure it’s really worth it for the quick influx of cash now. Selling a policy can also make it harder for you to qualify for public benefits, like Medicaid, or a new life insurance policy if you decide to buy again later.

If you’re still not sure what decision to make, our team is here to help. Contact us to speak with one of our agents today.

At Fidelity Life, our goal is to make life insurance simple, affordable, and understandable for everyday families. This content is intended for educational purposes only. Each post is carefully fact-checked, reviewed, and updated regularly to ensure the information is as relevant as possible.