March 20, 2021
30-second summary of 7 Things You Need to Know About Selling a Term Life Policy
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 7 topics:
- What is a term life policy?
- Determine if your policy is convertible
- If you have a conversion rider, read it carefully
- Your health and age affect settlement offers
- Check to see if you qualify for a life settlement before converting
- Explore additional options
- Have your policy appraised by a life settlement company
If you have any questions, you can contact us and one of our life settlement specialists will be happy to help you.
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 7 things you need to know about selling a term life insurance policy in a life settlement.
Term life policies are a type of life insurance coverage that provides a death benefit to the policyowner if the insured passes away within a certain timeframe. This differs from a permanent life insurance policy, which will remain in force until the death of the insured or until the policy’s maturity date.
Often, term life insurance is a way for the primary earner in a household to ensure that if they pass away before retirement, their dependents will be taken care of financially. Many people also maintain term policies for other reasons, even long after they have retired.
The most notable drawback to term life policies is that if the policy expires while the insured is still alive, the policy pays no benefit. However, there are ways that a policyholder can gain value from an active 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 that you must undertake before you can sell a term life insurance policy.
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. 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 should contact a life settlement provider to discuss what options you may have.
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 perm policy to a permanent policy – either whole life or universal life. Converting a policy is an important decision and has financial ramifications. Make sure that you carefully review and understand your conversion rider before converting the policy, if that is the decision you make. 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.
A variety of factors impact life settlement payouts, but few have greater 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 taking out a policy.
Traditionally, only insureds with impaired health could qualify for a life settlement. However, while most people who sell their life insurance policies do have some health conditions, healthy people can also qualify for a life settlement in some situations.
Before making any changes to your life insurance policy, check with a top life settlement company to see if you would be able to qualify if you converted the policy. Seeing if you’re eligible for a life settlement is easy and 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.
Before you pull the trigger on the sale of your policy, be sure to understand all your options. If you are on the healthier side, and you 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 could receive a better life settlement payout.
Here are two additional options that you may want to consider.
If your policy has an accelerated death benefit rider, that could be a viable alternative to a settlement.
Accelerated death benefit riders allow a policyholder to receive cash advances against the death benefit of their life insurance. This reduces the final death benefit, but can help policyholders who are terminally ill collect cash to pay for treatments and other expenses. These riders may also be called a living benefit rider or a terminal illness benefit rider.
Similar to an accelerated death benefit, a long-term care rider allows policyholders to access some of the death benefit while they are alive. In this case, the money is made accessible when a doctor determines that the policyholder 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.
Finally, to sell your term life policy, you need to reach out to a life settlement company to receive an appraisal, also called a quote by some providers. Some companies provide up-front quotes that frequently differ significantly from the final payout. Others, like Lighthouse Life, perform a basic eligibility screening first, then provide a more accurate appraisal after asking some follow up questions.
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 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.