You may have heard of tales about the people who traded their life insurance for cash; this may have given you an idea on “how to sell my term life insurance policy?” and the natural ways to get cash from your insurance policy whenever you want, but in truth, that is not the case.
Honestly, selling your life insurance is an option when you find yourself in a situation wherein you do not need the policy anymore. Even if you ever reach these situations, you need to know the process behind this choice, the various circumstances where you can sell your insurance and the consequences behind selling it.
Before you decide to sell off your policy for cash, you need to know that you won’t be able to pay for the premiums once you sell, nor will you receive any benefits that the insurance is inclusive of, once you pass away. This is where you need to be entirely sure that you’re willing to sell your policy.
Various methods of getting cash with life insurance:
Life insurance policies that have cash value, like whole and universal policies, tend to build reserves through extra premiums along with earnings. These deposits are held together in an account that is within your life insurance policy. Cash value life insurance will offer you a chance to gain access to cash that has accumulated over the years in the policy; you can get the cash through withdrawals, policy loans, partial or full surrender of the policy.
Another option is to sell your policy for cash by choosing a reputed life settlement agency. However, with any method you choose to gain cash from your policy, ensure that you know the consequences and that you will be well-prepared to face them in the future.
Life settlement:
The concept of life settlements is quite simple, you find a good settlement provider to sell your policy to and they will find a buyer who will take up your policy; this will include paying the premiums and availing the benefits when you pass away. Many types of insurance policies are usually up for sale, this includes the policies that have little or no cash value like term insurance.
For your policy to qualify for the settlement, it has to have a life expectancy of ten to fifteen years and the policyholder must be 65 years and above, the death benefit must be $100,000 (minimum).
A question like, “How to sell my term life insurance policy?” People usually answer it by saying that settlements have a standard advantage and that is the potential of receiving more cash when surrendering the policy. However, the taxation of a life settlement can get complicated. Generally, you will gain excess of your basis in the policy and that is taxed to you as ordinary income. You need to be sure that you receive expert tax advice before you sign off on your policy.
You need to consider the following points before you give up your policy for cash, via settlement:
Giving up control of the death benefit:
The new owners will gain access to your medical records and will request updates on your current health situation. Once the policyholder passes away, the complete control of the policy and death benefit goes to the new owners.
Surrendering a policy:
How to sell my term life insurance policy? Well, another useful method is surrendering the policy. You surrender the policy and use the cash the way you see fit. If you surrender the policy during the initial years, then the company will charge you some fees, thereby reducing your cash value.
The charges vary and it depends on the amount of time the policy has been in your possession. When you decide to surrender your policy for cash, the gains that you receive is subjected to income tax and if you have any outstanding debts, they will get subtracted from your final cash gains. When you surrender your cash policy, you’re usually giving the death benefit right away, this is the protection you get from the insurance company.
Loans:
Many cash value policies will allow you to borrow money from the cash account, that is, the cash that has been accumulating all these years and you can use it as collateral. It depends on the terms of the policy and the loan may have varying rates.
Conclusion:
There may be a number of reasons why you would want to sell your insurance policy. At times, it may because you don’t have a choice and really need the money for matters that are important. You should take into account all the factors that influence your decision before making it.
