How to Sell a Life Insurance Policy in the Secondary Market
Since the mid-1980s, there has been a steadily increasing market for the sale and purchase of existing life insurance contracts. Many companies now exist whose sole business is the purchase of permanent life insurance policies from consumers who no longer want, need or just can't afford the products they own. Typically, the companies, referred to as "life settlement companies," give the policy owner an amount of money that is more than the current cash surrender value but less than the full death benefit. In exchange, the policy owner transfers all rights to the life settlement company, who then becomes the new beneficiary.
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Instructions
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Contact several life settlement companies and compare them. Describe your current situation and the specifics of your existing permanent life insurance policy. The company will determine if you and your policy are acceptable candidates for a settlement offer.
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Complete the life settlement application documents. Much like a standard life insurance policy application, there will be questions about your current health, medications, family situation and financial capabilities.
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Examine the life settlement company's formal offer to purchase your contract. Compare this offer with those from the other companies you contacted.
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Complete and return the documents required to accept the life settlement company's offer. Return the paperwork, along with your original life insurance policy contract, to the company's main office in the prepaid envelope provided.
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Deposit the company's check into your bank account when it arrives.
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Tips & Warnings
When contacting various life settlement companies, inform each one that you are shopping for the best rate. By informing them up front that they are in a competitive situation, you may receive a slightly better offer for your policy.
Life settlements cannot be undone. All rights to your life insurance policy are relinquished when you sign the documents to accept the payment for your contract.
Unless you have other life insurance in force, selling your policy will result in no benefit available to your heirs after your death.
Proceeds from a life settlement are fully taxable. According to Insure.com, the NAIC urges you to consider the income tax consequences from receiving a large lump sum of money. It is always best to discuss these issues with a qualified tax professional prior to committing to any agreements.
