How to Sell Your Small Life Insurance Policy
You bought a life insurance policy to protect your loved ones in the event that you died prior to having the mortgage paid or sending the kids to college. You've met those major financial obligations and now find that you no longer need the insurance policy. Rather than cancel the policy and take the cash value out, you can sell the policy for a percentage of the death benefits, increasing your lifetime assets to utilize prior to dying.
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Instructions
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Read the insurance policy terms and conditions, checking to see if there are any clauses prohibiting the sale of the policy. This is rare and usually only applicable in the use of life insurance to fund an irrevocable trust.
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Call the insurance company to obtain the current death benefits, any loans on the account, and the cash surrender value. Request an "Owner Change" form.
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Obtain your medical records. Settlements are often used to pay for care with terminal illnesses, called a viatical settlement. The buyer will want an anticipated life expectancy to determine the present day value of the policy benefits.
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Confirm that you are the owner of the policy. There are four parties to an insurance policy: the insured, the owner, the beneficiary and the issuing insurance company. The owner and insured are often the same person but don't need to be -- the owner pays premiums and has all tax liabilities, while the insured is the life the policy pays benefits on.
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Locate a settlement broker serving your area. The broker needs to be licensed for insurance sales in your state and serves as the facilitator to find a buyer, called a provider, for the policy. If you are unsure where to find a settlement broker, speak with your insurance agent or tax adviser about recommendations.
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Meet with the settlement broker to discuss the possible value of the policy on the secondary market, as well as any fees the broker receives. Brokers get paid a commission when the sale is complete, which should be no more than 30 percent.
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Enter into an agreement with settlement broker, and wait for offers to be presented to you through him.
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Accept the best offer, signing the contract written by the broker. Feel free to review the contract with an attorney if you are concerned about the language. The contract serves to waive your beneficiaries' rights to the policy, as well as your rights as the owner to surrender or sell the policy to anyone else in exchange for compensation.
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Complete the ownership change form with the insurance company, and submit it. Use the name identified in the contract. The settlement broker will help you with this paperwork.
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Tips & Warnings
You can sell any type of insurance policy for a percentage of death benefits including term insurance, which holds no cash value.
Speak with a tax adviser regarding the tax consequences of selling a life insurance policy. The sale may be considered a capital gain on your tax return.
