7 things you need to know about Selling a Term Life Insurance Policy

Clock May 16, 2023


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Post Updated 1/31/2024

We’ve put together this guide to help give you insights and answers about life settlements for term life insurance policies. Below, we’ll review these seven topics:

  1. What is a term life policy?
  2. Determine if your policy is convertible
  3. If you have a conversion rider, read it carefully
  4. Your health and age affect settlement offers
  5. Check to see if you qualify for a life settlement before converting
  6. Explore additional options
  7. Have your policy appraised by a life settlement company

If you have any questions, such as can you sell your term life insurance policy or how to sell a term life insurance policy, you can contact us, and one of our life settlement specialists will be happy to help you.

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A life settlement is a big decision, just like signing up for life insurance. As with any important life decision, you should take time to inform yourself before committing to an option. This is especially true if you intend to sell a term life policy.

Here are seven things you need to know about selling a term life insurance policy in a life settlement.

1. What is a Term Life Insurance Policy?

A term life insurance policy is a type of life insurance that provides a death benefit to the policyowner if the insured passes away within a specified timeframe. This differs from a permanent life insurance policy, which will remain in force until the insured’s death or until the policy’s maturity date. 

Term life insurance is often called “temporary insurance” because it meets a temporary need. Often, term life insurance is a way for the primary earner in a household to ensure that if they pass away before retirement, a mortgage can be paid off, or their children’s educations will be funded. Many people also maintain term policies for other reasons, even long after retiring.

Many younger individuals and families buy term life initially because the premiums are substantially lower than a whole life insurance policy with the same death benefit amount. Although whole life insurance builds cash value over the years which can be withdrawn or borrowed, many people choose to buy a term life insurance policy with a larger death benefit to provide maximum financial security for their family.

The most notable drawback to term life policies is that if the policy expires while the insured is still alive, the policy pays no death benefit. The policy expires without value, and the non-refundable premiums paid never result in a death benefit being paid to the policy’s beneficiaries.

However, there are ways that a policyholder can gain value from a term life policy that they no longer wish to keep. In many cases, you can sell a term life policy through a life settlement. But unlike pursuing a life settlement for a whole life or universal life policy, there are a few steps you must undertake before selling a term life insurance policy.

2. Determine If Your Term Life Insurance Policy Is Convertible

When signing up for term life insurance, you may have been asked if you wanted to add a conversion rider. This rider allows you to convert a term life policy into a whole life policy. Typically, you must exercise your conversion privilege before the policy expires and before you turn age 65 or 70.

If you added a conversion rider, it will be specified in your policy with complete details on how and when you can convert from term to permanent insurance. If you’re unsure after reading your policy, a life settlement provider can review it with you and help determine if it is convertible.

These riders may come at an extra cost, but in exchange for the increased cost, you gain the ability to reclaim some of the value through a settlement or by carrying the policy through the remainder of your life.

If you don’t have a conversion rider as part of your term life policy, you’ll likely be unable to sell it through a life settlement. The exception to this rule is if you have a term policy and have an extremely serious or terminal health condition. In that case, you may still be able to sell your term life insurance policy, and you should contact a life settlement provider to discuss your options.

3. If You Have a Conversion Rider, Read It Carefully

Most conversion riders have expiration dates. If your term life policy is nearing its end, you should take some time to review the rider itself and ensure that it is still valid.

If the rider has not expired, you have the option to convert the policy from a term policy to a permanent policy – either whole life or universal life. Converting a policy is an important decision. Make sure you carefully review and understand your conversion rider before converting the policy if that is your decision.

If you have questions about your policy’s convertibility status, a specialist at a life settlement provider can explain details of the policy to you (provided you have the policy available) or can even contact your insurance carrier with you on the line to make sure you get all the answers you need.

4. Your Health and Age Affect Settlement Offers

A variety of factors impact life settlement payouts, but few have a more significant impact than your health and age. In general, younger and healthier people receive a smaller payout from a life settlement, if they qualify at all. Most people who qualify for a life settlement are at least 65 years old (and often are 75 or older) and have experienced a change in their health since they initially took out a policy.

5. Check to See If You Qualify for a Life Settlement Before Converting

Before making any changes to your life insurance policy, check with a to see if you would be able to qualify if you converted the policy. Seeing if you’re eligible for a life settlement is free and usually takes less than 5 minutes.

You can get started by filling out our eligibility form to see if you qualify or by chatting with one of our life settlement experts with our web chat tool. Or if you’d prefer to speak with someone by phone, give us a call at 866-910-4000.

6. Explore Additional Options

Before you finalize the sale of your policy, be sure you understand all of your options. If you are healthier and can afford your premiums for the foreseeable future, you may wish to hold onto the policy for the duration of the policy term or wait until you can receive a better life settlement payout.

In addition to selling your life insurance policy, these are two additional options you may want to consider.

Accelerated Death Benefit Rider

If your policy has an accelerated death benefit rider, that could be a viable alternative to a settlement.

If you’ve been diagnosed with a terminal illness and your policy has an accelerated death benefit rider, it could be a viable alternative to a life settlement.

Accelerated death benefit riders allow a policyholder to receive cash advances against the death benefit of their life insurance, so long as the conditions of the rider have been met (usually, this means that the insured has a life expectancy of 2 years or less). The early payment of some portion of the policy benefit can help policyholders who are terminally ill collect cash to pay for treatments and other expenses. These riders may also be called “living benefit riders” or “terminal illness benefit riders.”

Long-Term Care Rider

Like an accelerated death benefit, a long-term care rider allows policyholders to access some of the death benefit while alive. In this case, the money is made accessible when a doctor determines that the insured requires long-term care. The death benefit is then decreased each month in exchange for direct cash payments to the policyholder that are intended to pay for the cost of care.

7. Have Your Policy Appraised by a Life Settlement Company

Finally, to sell your term life policy, you need to reach out to a life settlement company to receive an appraisal. Fast appraisals provided by a life settlement estimate calculator can give you a general idea of how much your policy may be worth. To get a full and accurate appraisal, additional eligibility questions will be asked, and policy and medical records will be collected and reviewed. If you do qualify, the full appraisal will be used to make an offer to purchase the policy.

Ready to Sell Your Term Life Policy Through a Life Settlement?

Now that you know all you need to know about selling a term life policy, you’re ready to explore your options. If you haven’t done so already, get started by filling out our eligibility form and see what kind of life settlement you could receive from Lighthouse Life. If you have any questions, our life settlement experts will be happy to speak with you and provide answers.

Should you Sell Your Term Life Insurance Policy?

Term Life Insurance FAQ

Can I sell my term life insurance policy for cash?

Yes, you can sell a term life insurance policy for cash through a process called a life settlement. Life settlement companies purchase policies from policyholders, providing a lump sum cash payment in exchange for the ownership and beneficiary rights of the policy. While convertible term policies (those with a term conversion rider) are more commonly sold in life settlements, some annual renewable term (ART) policies, and even non-convertible and non-renewable term policies, may also qualify.

How much money can I get by selling my term life insurance policy?

The cash amount you can receive by selling your term life insurance policy depends on several factors. These include your age, health condition, policy value, policy carrier, and the current market conditions for life settlements. It’s advisable to consult with a life settlement provider who can evaluate your specific policy and provide an estimate of the potential cash payout.

What factors determine the value of my term life insurance policy when selling it?

Several factors determine the value of a term life insurance policy in a life settlement. These include the policy’s face value, the policyholder’s age and health, premium payments, remaining term, market conditions for life settlements, and the insurance company’s ratings. Together, these factors influence the policy’s attractiveness and potential value.

Is it possible to sell a term life insurance policy that is still active?

Yes, only active policies can be sold in a life settlement. Policies that have lapsed or expired do not qualify. Eligibility for selling an active policy depends on factors such as the policy’s face value, remaining term, and the policyholder’s age and health. Consulting with a life settlement provider can give you specific information about your situation.

What are the steps involved in selling my term life insurance policy?

The typical steps involved in selling a term life insurance policy are as follows:

  1. Evaluation: Submit an application with relevant policy and health information to a life settlement company for an evaluation.
  2. Review Offer: If your policy qualifies, review the offer provided by the life settlement company.
  3. Acceptance and Closing: Accept the offer, complete the necessary paperwork with the help of the life settlement company, and finalize the sale.
  4. Funds Disbursement: Receive the agreed-upon cash payout after the sale is completed.

It’s recommended to consult with a professional experienced in life settlements to guide you through the process.

Will selling my term life insurance policy have any tax implications?

Yes, selling your term life insurance policy can have tax implications. The proceeds from the sale may be subject to income tax if they exceed the premiums paid into the policy. It’s wise to consult with a tax advisor or financial professional for personalized guidance regarding your specific situation.

What are the alternatives to selling my term life insurance policy?

Several alternatives exist to selling your term life insurance policy. These include an accelerated death benefit rider or a long-term care rider if either is available to you. Your life insurance company or agent can confirm if your policy has these riders and explain how the benefits would work if exercised.

Are there any fees or costs associated with selling my term life insurance policy?

Yes, there may be fees and costs associated with selling your term life insurance policy. These can include administrative fees, transaction fees, medical underwriting costs, and fees charged by the life settlement provider. It’s crucial to review and understand any fees or costs before proceeding with a life settlement transaction.

Can I sell a portion of my term life insurance policy, or do I have to sell the entire policy?

In most cases, life settlements involve selling the entire term life insurance policy. Selling only a portion of the policy is uncommon, though it may be possible in some cases through a retained death benefit (RDB). Consult with a life settlement provider to explore potential options or alternatives specific to your policy and situation.

What happens to my beneficiaries if I sell my term life insurance policy?

When you sell your term life insurance policy, the ownership and beneficiary rights are transferred to the buyer. As a result, your beneficiaries would no longer receive the death benefit from that policy. It’s essential to consider the impact on your beneficiaries and determine if a life settlement is right for you before proceeding with a sale.


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