Sell a Life Insurance Policy With Cash Value: What You Can Expect

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Struggling to access the cash value in your life insurance policy? Selling it for more than its policy value could unlock immediate funds, often exceeding the face value of your life insurance.

This guide explains the life settlement process. It covers valuation based on death benefit and health, plus payouts, fees, taxes, and alternatives.

Find out if selling suits your needs. Maximize your return today.

Key Takeaways

• Selling a cash value life insurance policy via life settlement yields more than surrender value, based on policy type, your health, and life expectancy-often 2-6x higher payout.
• The process involves finding institutional buyers, undergoing medical underwriting for valuation, with typical fees of 20-30% deducted from proceeds via the broker.
• Tax-free payouts cover up to policy basis. Gains above that count as taxable income.
• Try loans or policy conversion first.

What Is a Cash Value Life Insurance Policy?

Cash value life insurance policies include whole life, universal life, and variable universal life. They build savings alongside death benefit protection, unlike term life insurance.

These permanent policies offer lifelong coverage. They include a savings component called cash value that grows over time through premium payments.

Policyholders can borrow against, withdraw, or use cash value to pay premiums. This makes it a flexible financial tool.

For example, a policy with $250,000 face value might build cash value for emergencies or retirement.

Cash value grows like a savings account inside the policy. It typically earns 2-4% annually, based on policy type and insurer performance.

Term life offers only temporary coverage with no cash buildup. NerdWallet data shows 65% of permanent policyholders tap cash value by year 10.

They use it for education or debt payoff. The NAIC sets rules for clear cash value projections.

Key terms include death benefit and face value. Death benefit is a tax-free payout to the beneficiary upon the policyholder's death.

Face value sets the initial coverage level, like $250,000. Premiums fund both death benefit and cash value.

Growth depends on age, health, and life expectancy. Selling via life settlement can yield a higher lump sum than surrendering.

Reasons to Sell Your Policy

Selling via life settlement makes sense when other options fail. Forbes data shows 12% of permanent policies get surrendered yearly.

Reasons include rising premiums or changing needs. Life settlements pay 20-400% more than surrender value.

• Ideal for those over age 65 with shorter life expectancy.
• Buyers value the death benefit against policy value.
• Unlocks funds without letting coverage lapse.

Triggers include job changes, health issues, or family events. These reduce the need for high coverage.

• Whole life or universal life policies build cash value.
• Ongoing premiums can drain resources.

Brokers assess age, health, and policy type for offers. Proceeds often beat carrier surrender values and stay tax-free.

Financial Hardship

Premium payments can become too high. Policyholders facing job loss or medical bills get lump sum cash payouts up to 4x the surrender value through life settlement.

Life settlement lets you sell policy. A 62-year-old with a $500K whole life policy faced $15K annual premiums after job loss.

Selling fetched $180K. Surrender value was just $42K.

This cash payment created an emergency fund. It covered 12 years of retirement savings expenses and avoided policy lapse.

A Policygenius study shows 78% of hardship sales focus on premium relief. This lets people focus on recovery.

Viatical settlements help those with serious health issues. They offer even higher returns.

The $138K above surrender value beat other options like converting or borrowing. Buyers take over premiums for immediate cash.

Consult an experienced broker. They know policy type and life expectancy to get the best offer.

Life settlements turn burdens into assets during hard times.

Underwriting sets fair value based on coverage level and market demand. Permanent policy owners get more than cashing out early or converting.

They keep more policy value for retirement savings or debt payoff.

Financial needs change over time. Over-insured people aged 65+ find their $1M death benefit exceeds needs.

Policyholders love how policy sale becomes attractive. An empty-nester turns a $750K universal life policy into $225K retirement fund.

A widower sells for personal care. A business owner downsizes after paying loans.

Elizabeth Rivelli, a broker in Columbus GA, helped a client get 315% over cash value on an Aflac policy. This shows real gains from life settlement.

• Empty-nesters free up premiums for travel or hobbies after kids leave home.
• Widowers shift beneficiary funds to in-home assistance amid changing health.
• Business owners downsize coverage post-debt, bolstering cash reserves.

Many seniors let Aflac policies lapse instead of selling. Selling gives tax-free proceeds for new priorities.

Underwriting checks age and health. Brokers like Rivelli match offers to life expectancy and needs.

The Life Settlement Process

The life settlement process turns policies into cash. Institutional buyers compete with bids.

Regulations from the NAIC Model Act govern it. The process takes 6-8 weeks.

About 85% of qualified policies get multiple offers. They average 25% of face value per Coventry data.

Sellers get a lump sum from permanent policies like whole life insurance or universal life insurance. Payouts beat surrender value or cash value.

Licensed brokers shop the policy sale to buyers anonymously. They find the best payout.

This helps with high premium payments or shifting financial needs. Use funds for retirement savings or emergency fund.

Life settlements fit healthy seniors over age 65 with policies exceeding $100,000 in death benefit. Sell now and gain freedom over lapsing or converting term life.

Underwriting assesses health, age, and life expectancy. No invasive exams needed.

Expect clear info on policy type and coverage level. Providers handle Aflac policies too.

Experts like Elizabeth Rivelli in Columbus, GA recommend them. The National Association ensures fair standards.

Finding a Buyer

Buyers compete for policies. Brokers match sellers to top offers.

A licensed life settlement broker connects sellers to 20+ institutional buyers, including Tier One Insurance Company. This generates 3-5 competitive offers in 2 weeks.

Pick an NAIC-licensed broker from directories like Policygenius. A 15-minute application starts the viatical settlement process for permanent policies with cash value.

1. Select an NAIC-licensed broker experienced in whole life, universal life, or variable universal policies.
2. Submit basic policy details such as face value, premiums, and ownership info, with no medical exam required.
3. Receive ranked offers based on payout and net present value for easy comparison.
4. Compare offers to your insurance company's surrender value. Confirm it beats cash value alone.

Many sellers grab the first offer and lose 22% of value, says Forbes and Policygenius. Brokers fight for the best deal to build your emergency or retirement fund.

This method keeps things clear. It stops shady deals from lowball buyers.

Underwriting and Valuation

Underwriting checks 47 health factors and policy details. It sets offers at 10-30% of face value.

Providers look at age, health, and life expectancy fast. Whole life or universal life policies often beat surrender value.

1. Review medical records via APS. Doctors and hospitals provide 80% of value data.
2. Check MIB Group database for insurance history.
3. Calculate life expectancy with AVM tables.
4. Value with discounted cash flow. It weighs future premiums vs. death benefit timing.

A $500,000 policy with 12-year life expectancy can get a tax-free $125,000 offer. This beats letting coverage lapse.

Full HIPAA releases speed things up and draw more bids. The National Association of Insurance Commissioners says solid underwriting ensures fair cash payouts.

What Determines Your Payout?

Life settlement payouts swing wide based on 8 key factors. Qualified policies average $300K, crushing $75K surrender value.

NerdWallet notes top sellers grab over 400% of cash value. Policy type and health drive 82% of differences, per NAIC studies.

Policy type sets base offers. Health and life expectancy boost payouts.

Age, tobacco use, and policy age tweak the total. Gather medical records early for max tax-free cash.

• Face value of the policy
• Current premiums
• Contestability period left
• Life expectancy
• Medical history

A 70-year-old with a $1 million whole life policy can score big cash. Brokers weigh these against insurance company surrender value.

Policy Type and Cash Value

Whole life policies pay highest at 22% of face value. Guaranteed premiums beat universal life's 18% with flexible payments.

Permanent policies shine in settlements. Term life rarely sells due to expiration risks, says Coventry data.

A $1 million whole life policy with $89K cash value often yields a $220K settlement. This beats surrendering for much less, based on Coventry data.

Cash value sets a floor. It rarely matches settlement offers if premiums strain finances.

Consult a broker. Compare offers to insurance company surrender values before selling.

Health and Life Expectancy

Payouts rise 3.2% for each year of reduced life expectancy. A 70-year-old with heart disease gets 28% of face value, compared to 12% for a healthy peer.

Health status drives settlement amounts. Buyers use actuarial tables like AVM estimates to discount the death benefit.

Chronic conditions signal shorter life. Buyers offer more to capture policy value sooner.

Life expectancy under 10 years qualifies for viatical settlements. These skip the two-year contestability period for faster, higher payouts.

Experts like Elizabeth Rivelli note this benefit. Chronic conditions like diabetes or cancer boost offers by 15-35% over healthy baselines.

Ages 65-80 account for 71% of transactions. Underwriting uses medical records to set life expectancy ratings that impact the lump sum.

Costs and Fees Involved

Life settlement costs average 28% of proceeds. They include 5-6% broker commission, 2% provider fee, and $1,500 underwriting expenses.

Sellers often miss these deductions. They compare sales to surrender value or cash value from insurers.

A $200,000 policy offer depends on age, health, and life expectancy. Fees can cut the final cash payout sharply.

The National Association of Insurance Commissioners requires fee disclosure. This protects consumers in viatical or standard life settlements for policies like whole life or universal life.

Knowing who pays fees helps plan lump sum payouts for retirement or emergencies. Brokers represent sellers and earn commissions from proceeds.

Providers take a cut for premiums and death benefits. Escrow services handle closing and often split costs.

Medical exams verify health details. Higher face value or shorter life expectancies mean bigger fees but similar percentages.

A $200,000 offer nets $142,000 after 29% fees. This leaves less cash than expected.

Shop multiple brokers recommended by the National Association. Compare offers and negotiate terms.

Review policy types like variable universal life. Check qualifying factors before committing to maximize tax-free payouts.

• Get all fees in writing per NAIC rules before accepting.
• Weigh these costs against keeping your policy.

Tax Implications of Selling

IRC Section 101 excludes death benefits from taxes. Gains above basis face ordinary income rates up to 37%.

This differs from short-term policies. Companies like Aflac offer those.

Aflac stands for American Family Life Assurance Company. It is headquartered in Columbus, GA.

The IRS treats life settlement proceeds in two parts. It counts basis as tax-free and gains as taxable. The basis equals total premiums paid minus prior withdrawals or dividends. For instance, a $250,000 settlement with $180,000 basis leaves $70,000 taxable. Tax applies at ordinary income rates. This rule covers permanent policies. Examples include whole life, universal life, and variable universal life. Term life lacks cash value, so it does not apply. IRS Revenue Ruling 2009-13 explains gain calculations for settlements. NAIC guidance tells sellers to track premiums for basis. Consult a tax advisor. State taxes may apply too.

Picture a 67-year-old selling a $400,000 policy for $110,000. Basis totals $92,000 from premiums paid. Here, the $92,000 basis returns tax-free. The $18,000 gain faces 32% tax, about $5,760 owed. Policy value above basis creates the tax bill. Surrendering gives less cash than selling. Age, life expectancy, and underwriting set the offer amount. They affect cash after taxes. Try a tax estimator tool. Policygenius or NerdWallet calculators help model your scenario.

Selling beats cash value payouts. Use it for retirement or emergencies. Plan for taxes on gains over premiums. Brokers review policy type and National Association of Insurance Commissioners guidelines. They help maximize offers. Keep all documents for IRS rules. Bad reporting leads to audits. Lapse forfeits all value. Life settlements keep most value for heirs with less tax.

Alternatives to Selling

Check five alternatives before selling. They yield 45% less cash but keep insurability.

Access cash value without full surrender. Examples suit different needs. For instance, a whole life policy with $100,000 face value might yield different outcomes based on policy type and health. Surrender provides quick liquidity, while loans maintain coverage. Reduced paid-up options eliminate future premium payments, and conversions suit term life holders. Each preserves the death benefit for beneficiaries to some degree, unlike a full policy sale.

Think about life expectancy, age, and money needs. Pick what fits best. A policy loan from universal life charge 8% interest. They offer flexibility without ending coverage. Term conversion, like Aflac's option, shifts to permanent coverage without new underwriting. The 1035 exchange lets you swap policies tax-free, potentially lowering premiums. Aflac's reduced paid-up option keeps 62% of cash value as death benefit. It helps those facing premium hikes. Expert Elizabeth Rivelli says these options beat viaticals for healthy seniors.

Underwriting varies; brokers assess qualifying factors like policy age and rider status. National Association guidelines stress comparing lump sums to ongoing costs. Use these for retirement fund or emergency fund needs without losing all protection. Here's a comparison: