Are you thinking about selling your life insurance plan for cash or maybe you want to end your monthly premium payments? While doing so you may have to consider the pros and cons of selling life insurance policy.
No doubt having a life insurance plan provides mental satisfaction as well as financial security to your loved ones in case of your sudden demise. But in case you want to offload your premiums or maybe need some quick cash, you can consider selling your life insurance plan.
However, whatever the reason for selling would be, it’s best to think about every single pros and cons of selling life insurance policy. In this blog post, we will go through various benefits and drawbacks of selling an insurance plan.
Before that let’s get started with some basic information.
Can you sell a life insurance plan?
Yes, you can sell your life insurance plan. However, selling a life insurance plan to a third party is called a life settlement. Life settlement companies are the businesses that buy life insurance plans and anyone can buy the plan whether it’s a term life or a permanent life plan.
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How does selling life insurance plans work?
When you sell your insurance policy to a life settlement company, it pays you the amount and continues to pay the remaining premiums of your policy. The ownership of the policy is transferred from you to the buyer and in case you die, instead of your beneficiaries the person who owns your policy now will get the payout.
In this way, it’d be a win-win scenario for the seller who can make money on the insurance plan by selling it if he can’t afford the premium, and the buyer who gets the payout. Meanwhile, there is another option for you if you select to sell only part of your life insurance plan, this option is called Retained Death Benefit. If you go with this, your aligned beneficiaries will get a portion of the death benefit alongside the third-party buyer.
Pros and Cons of Selling Life Insurance Policy
Now being aware of how the policy selling process works, let’s explore the pros and cons of selling life insurance policy.
Here are some of the benefits of selling a life insurance plan:
1- No More Premium Payments
After selling your life insurance policy to a life settlement provider, he will take over the ownership along with monthly premium payments. By selling you can remove an increasingly costly premium from your monthly expenses as the premium increases with age. You will receive a one-time payment for your life insurance plan from the buyer.
2- Higher Payout
Where a lot of life insurance plans are surrendered or lapsed for a small amount, a third-party buyer may offer you a significant amount that’s above and beyond the cash value. Generally, life settlement proceeds are four times more than the cash surrender value. It means it puts more dollars into seniors’ pockets as compared to life insurance providers.
3- Instant Cash Payout
Life changes as we grow older. Maybe your plan’s designated beneficiary is no longer alive or your children are financially independent now and they don’t need the death benefit. But being senior maybe you need it for retirement, healthcare costs, or long-term care now. Sometimes, getting the value from your insurance plan is a wiser and healthier decision instead for the long haul.
4- Use the Cash Freely
When you sell your insurance plan to a life settlement, you can use the proceeds for anything and any way you would like. Because there is no restriction on what you can buy or where to spend that money. Some people save the cash as their extra retirement savings, others need it to pay for daily life expenses or to pay a debt. So it’s up to you to decide how to use your money after selling the plan.
1- Tax on Life Settlement Proceeds
Sometimes a life settlement may come with a tax bill based on your personal situation, but you will not be taxed on the whole cash payout. Instead, the profit you make from the settlement is taxed as long-term capital gains. It is suggested to work with a tax specialist to make sure a life settlement makes sense for your distinct situation.
2- Reduced or No Death Benefit
Based on whether you choose to retain some death benefits for your beneficiaries, your family will not receive any money from your insurance policy in case of your death. The reason is that the life settlement company takes the financial risk (hold) of the policy by taking the ownership and they will receive a part of all of your plan’s death benefit.
3- Not Qualify for Another Life Insurance Plan
Before selling your life insurance plan in a life settlement, ensure that you will not need life insurance in the future. Because when you sell your insurance policy, insurers will be less than keen on selling another life insurance plan to you that you may need.
The Bottom Line
Whether selling a life insurance plan is a good idea or not depends on your financial situation and other preferences. However, considering the pros and cons of selling life insurance policy is necessary so that you don’t have to go through any hassle after selling. Before selling you can also discuss your matter with a professional advisor or insurance agent so that he can guide you accordingly.
Frequently Asked Questions
1- What are the tips for selling life insurance?
Here are some of the tips for selling life insurance:
- Lean on referrals
- Keep up with changes
- Understand your targeted audience
- Invest in continuous learning
2- How to be successful in insurance sales?
To be successful in insurance sales you need to become a professional and good insurance agent. For this, you have to adopt these qualities:
- People Skills
- Good customer services
- Honesty and persistency
- A wide array of products
- Emotional intelligence