This post has been updated to reflect the most up-to-date information
30-Second Summary of How to Sell a Universal Life Insurance Policy for Cash
Universal life insurance is a popular form of permanent life insurance. It can accumulate cash value over time and also provide a death benefit to your beneficiaries. However, if your universal life insurance policy no longer serves its intended purpose, you may be able to sell it for cash through a life settlement.
Selling your policy generally consists of these three steps:
- Decide if you still want your policy
- See if you qualify for a life settlement
- Accept the offer that serves you best
It takes less than 5 minutes to see if you may qualify to sell your universal life insurance policy.
Universal life Insurance, a type of “permanent” life insurance, can remain in force for your entire life. As with other types of life insurance, as long as the policy’s premiums are paid to cover the ongoing cost of insurance, the death benefit will be available to your beneficiaries.
Many people choose universal life policies because of their low premiums (compared to whole life insurance) and ability to accumulate cash value over time, similar to savings accounts. The policyowner can use the cash value to help pay premiums, withdraw cash from the policy, take a loan against it, or surrender it back to the insurance company.
As with all kinds of life insurance, universal life policies have advantages and disadvantages that you should consider carefully when you decide to buy, keep, or terminate the policy.
For example, if you only pay the minimum premiums for a universal life policy, the policy won’t build much cash value. Doing that too often increases the risk of your policy lapsing without value.
Additionally, many seniors purchased universal life insurance policies when their financial goals and needs were different than they are today. In many cases, those policies no longer serve their intended purpose and may be too expensive to maintain.
If this sounds like your situation, consider selling your universal life insurance policy in a life settlement. Life settlements pay, on average, four or more times a policy’s cash surrender value and can provide you with a significant cash payment.
Can I Withdraw or Borrow Money from My Universal Life Insurance Policy?
While many factors determine if you can withdraw money from a universal life policy, the answer is frequently “yes.” But withdrawals from a policy’s cash value reduce its death benefit and may have negative tax implications.
Policyowners can also take loans against the cash value of a universal life policy, but the loan must be paid back and will reduce the policy’s death benefit by the amount of the outstanding loan.
If a universal life policyowner wants to access the value of their policy while they are still living, a life settlement may be the best option.
“Most seniors purchased their life insurance policies for good reasons,” said Michael Freedman, CEO of Lighthouse Life. “But when the time comes to enjoy the money they’ve invested along the way, they discover it’s not necessarily easy to do and may not be in their best long-term interests. This is why many policyowners turn to life settlements as a way to realize the full market value of their policies.”
Why Would I Sell My Life Insurance Policy?
There are many reasons that selling your universal life insurance policy through a life settlement could benefit your future. Some of the most common reasons retirees opt for life settlements include:
The policy is no longer needed or has become unaffordable.
As your lifestyle has changed over the years, you may have outgrown your need for the policy. Additionally, your premiums may have become too expensive.
Rather than letting the policy lapse or surrendering it for its cash surrender value, a life settlement could help you generate a larger cash payment to use as you wish.
You need money for retirement or medical expenses.
Many people find retirement to be much more expensive than they had planned. Between the rising cost of living and increasing health care costs, life settlements can produce some much-needed extra cash.
Medical and long-term care costs also continue to rise. A life settlement can help pay for medical expenses and the cost of home health care or long-term care.
Pad your rainy-day fund.
While the cash from a life settlement could help fund future responsibilities such as health care, there are no limits to what you can put the money toward. Once the sale is final, that money is yours to use however you choose, from your dream vacation to home renovations. You can even decide to put that money away to prepare for the unexpected.
If you are considering selling your universal life insurance policy and wondering if a life settlement might fit your circumstances, consider these pros and cons to help you decide:
Pros:
- Quick lump sum payment
- End to premium payments
- More cash paid to you than the surrender value
- Flexibility to spend the payout as you wish
Cons:
- Beneficiaries will not receive death benefits (in most settlements)
- Potential for tax liability
- May change eligibility for financial assistance like Medicaid
How to Sell a Universal Life Insurance Policy with a Life Settlement
A life settlement allows you to sell your life insurance policy for its market value, giving you a lump sum of cash that you can use for long-term care expenses, medical costs, retirement expenses, or anything else you wish.
Selling your policy generally consists of these three steps:
- Decide if you still want your policy
- See if you qualify for a life settlement
- Accept the offer and complete the transaction
A life settlement can help you turn a universal life policy that has outlived its usefulness into a substantial cash windfall that can help you get the most out of your retirement. Understanding the life settlement process can help you choose your best course of action.
Step 1. Decide If You Still Want Your Policy
People purchase life insurance policies for many reasons, such as to protect family members from financial hardship and to reduce business risk. However, over time these needs can change.
Perhaps the beneficiaries were children when the policy was issued and are now adults who no longer need the policy’s death benefit. Or maybe the business has been sold, and the life insurance policy is no longer needed.
Consider your life insurance policy – are your financial needs the same now as when you initially purchased it? If not, does it make sense for you to continue paying for the policy, or could you benefit more from selling it for a large cash payout?
Step 2. See If You Qualify for a Life Settlement
If you decide your universal life insurance policy no longer serves its intended purposes or is too expensive to maintain, see if you qualify for a life settlement.
People who qualify for a life settlement usually:
- Have a life insurance policy with a face value of $100,000 or more
- Are at least 65 years old
Finding out if you qualify is fast and free, and you can get started in under 5 minutes by using our life settlement estimate calculator.
Step 3. Accept the Offer That Serves You Best
Be sure to select a trustworthy company that is committed to providing you with work best for you and your financial goals. At Lighthouse Life, we advocate for seniors to realize the full market value of their life insurance policies while providing industry-leading protection and complete transparency to policyowners.
Universal life insurance policies can be a sound financial tool, but make sure you understand your options when it comes to withdrawing cash or taking a loan from your policy. And if your universal life policy no longer serves its intended purpose, or is too expensive to afford any longer, consider if it makes sense to sell it for cash through a life settlement.
To learn more about life settlements for universal life insurance policies, please contact us today.
