Getting a Cash Offer for Your Term Life Insurance Policy: What You Need to Know

What if you could sell your term life insurance policy for cash instead of letting it expire?

This process is called a life settlement. It’s a way for someone to sell a policy they no longer want or need rather than letting the policy lapse.

For a comprehensive article about life settlements, read What Should I Do With Life Insurance I Don’t Need?

Quick Summary

• You’ll need to convert all or part of your term policy to a permanent life insurance policy before you can sell it. (We will help you with the conversion.)
• The value will be primarily determined by your age, health, and death benefit.
• A life settlement broker can help you get the most cash for your policy.

What is your Life Insurance Policy Worth?

What Makes Selling A Term Life Insurance Policy for Cash Different? 

Term life insurance only lasts for a set period of years. Once that time elapses, the term is complete, and the policy evaporates. This comes as a shock to many people who weren’t properly told that when their term life insurance expires, that’s the end.

It differs from a permanent life insurance policy, like a whole life or indexed universal life, because it expires. Permanent life insurance policies last for life or, in some cases, mature between ages 95 and 110 – in which case, your heirs will get the death benefit.

Most people end up purchasing term life insurance because they want to cover something specific, like raising a child to adulthood or covering their mortgage. But sometimes, reasons pop up that put a policyholder in a position where selling their life insurance makes the most financial sense.

Reasons for Selling a Term Life Policy

We’ve seen many reasons that people have when they talk to us about selling their life insurance policies. These are some of the most common ones.

They no longer need or want the policy. This can come from several areas. Sometimes it’s an old term policy they purchased when they were first married or first had children. It’s been years, and now they want to replace their policy with something that builds cash value, as one example. Rather than hold two life insurance policies, they’ll see if selling their term life insurance makes sense.

Change in finances. Sometimes, people just hit a streak of bad luck and look for ways to reduce their monthly expenses. Rather than letting their life insurance lapse, looking into a life settlement is another great way to ease some of the monthly expenses.

Boost retirement savings. As people approach retirement, sometimes they’ll be looking for ways to boost their retirement savings. If the life insurance policy isn’t needed anymore to provide for a spouse, mortgage, child, or it’s getting close to completing the term, selling the term policy for cash is one option to boost your retirement investments.

Unexpected expenses. According to recent reports, 57% of American families cannot afford a $1,000 emergency expense. Instead of putting it on a credit card at horrendous interest or having to borrow from family or friends, getting the cash from a life settlement is one way to get some help with a financial stumble.

Medical stress. Sometimes, people are faced with a terminal illness that also comes with large medical bills. Many term policies don’t have accelerated death benefit options (which pay in the event of a serious health condition, for example.) Selling a life insurance policy when you have a limited life expectancy is often called a viatical settlement.

Eligibility Criteria for Term Life Settlements

Selling a term life insurance policy for cash is a little trickier than selling a whole life or universal life policy. The buyer will usually require a term policy with a conversion option. Most life insurance companies offer this for their term policies to age 65 or 70 (this varies by policy.) If you’re not sure if your term policy is convertible, you can either look it up in your contract or ask your agent.

A term conversion lets you change your policy from a term to a permanent policy. You won’t need to go through underwriting again, but the premiums will change to your current age.

Talk to your life settlement broker about when you’ll need to convert your term policy during the life settlement process.

Now that we’ve covered term conversion, there are a few more requirements for selling your life insurance.

First, most buyers won’t consider a policy with less than $100,000 in death benefits. In our experience, there is some wiggle room on this number, especially for someone in poor health. If you aren’t quite there, give us a call, and we’ll see what we can do.

The second part is age requirements. If you’re young, like between 30 and 50, it’ll be difficult to sell your policy. The buyer only makes money from the death benefit. They also take over the payments. So if you’re young and they’ll be on the hook for decades of premium payments, then it’ll be difficult to sell your policy or likely earn you very little.

Most of the time, buyers are looking for policies from someone aged 65+.

Finally, the policy must be in force. You can’t sell a policy that has already expired.

Term Life Settlement Process 

What happens if you have a policy that you don’t need and you want to see what it might sell for?

The first step is getting in contact with a life settlement broker. Life insurance agents are often qualified to help you with this, but it’d be wise to ask if they have experience with the process. They will show you potential purchase prices based on the initial information you give them. If the initial quotes aren’t what you’re looking for, call us at (888) 905-0333 to see if there is anything we can adjust or if there are other options to increase the amount you get for your policy.

At this stage, you may also want to check if your policy’s cash surrender value is higher than the life settlement, although, with term life policies, there usually is no cash surrender value. Your financial advisor can also help you with any tax implications.

Next, you’ll need to see if your term life insurance coverage has a conversion feature. Buyers only purchase permanent policies (like whole life or indexed universal life) or term policies that are convertible. Term policies can usually be converted for a specific amount of time after purchase or to age 65 or 70.

You’ll also need some medical documentation. Most life settlements will earn you more money the older and/or sicker you are. You must provide proof of any medical conditions or sign a release for the life settlement company to access your medical records.

At this point, your life settlement provider will be handling the rest of the steps. You’ll just need to sign some paperwork at the sale.

For more detailed information on the steps for selling a life insurance policy, click here.

How Policy Valuation Works

Term life settlement valuation works a little differently than whole life or universal life. A life settlement broker can help determine how much the conversion premium will be.

Other factors include:

• Age
• Health
• Death Benefit
• Policy type

Once we have these details, our life settlement broker will shop around to get you the highest offer to purchase your policy.

Making an Informed Decision on Selling a Term Life Policy for Cash 

​The best way to get the most cash when you’re considering the sale of a life insurance policy is to work with a third party, such as one of the life settlement brokers here at Abrams Insurance Solutions, to advocate for you with potential buyers. Life settlement companies will often buy directly from people without any fiduciary duty to them. 

Luckily, life settlement transactions are pretty straightforward when your broker takes care of all the work. While a term policy may not sell for as much cash as any type of permanent life insurance, you’ve saved money on premiums for years, comparatively. Any amount of money is better than letting your policy term expire without looking into other options. 

​Call us today at (888) 905-0333 to see what other options you have if your term policy is expiring or if you just don’t want your life insurance anymore.