Did you know you can sell all or a portion of a life insurance policy, even term insurance?
For some people, selling a life insurance policy that no longer fits their needs is a good financial option. If you choose to sell a life insurance policy, you will be selling it to a life settlement provider. These are companies that purchase life insurance policies from policyholders. Most settlement providers buy policies on behalf of their investors or other financial institutions, and some keep them as an internal investment. When deciding to sell a life insurance policy, you want to make sure you know the best company to sell your life insurance policy to.
Benefits to the Buyer
The policy owner gets a lump sum payment when they sell their policy, but what’s in it for the party who buys life insurance policies? Buying life insurance policies is considered a stable investment with predictable returns, and so is desirable for some investment portfolios.
When an investor purchases a life insurance policy, they pay less than the death benefit, but significantly more than the policy owner would get by simply surrendering the policy to the insurance company, and the investor becomes the beneficiary. They continue to pay the policy’s premiums, and after the death of the original policy owner, that investor receives the death benefit payment. For example, if an investor purchases a $750,000 policy for $150,000, the $600,000 difference is the potential return on their investment. The negatives to them are that they will continue to make payments on the policy until the original policy owner’s death, which represents an unknown cost, and there is the possibility that the life insurance company could go bankrupt or refuse to pay for some other reason, although this is very uncommon.
Direct Buyer vs Broker
Because selling a life insurance policy is such an important and highly-regulated process, there are usually multiple people involved other than just one person selling their policy and one person buying it. An important distinction to make is between the direct buyer (maybe the life settlement provider, maybe not) and a life settlement broker.
The life settlement broker is not the one buying the life insurance policy, but rather is representing the seller. Because of the complex nature of life insurance beneficiary rules and other regulations, working with a broker with specialized knowledge can ensure you get fair market value for your life settlement. In cases where the life settlement provider is not the direct buyer, they represent the buyer in the same fashion.
Do Life Insurance Companies Buy Back Policies?
Let’s look at another group that people often think about as buying life insurance policies – the life insurance company itself. There are some cases when the life insurance company that issued the policy will pay money to a policy owner in exchange for the policy. However, it’s not exactly “buying back” and not the same process as a life settlement. Here are 2 examples of when that might happen:
Cash Surrender Value
Some insurance policies may have a cash surrender value, available if enough premiums have been paid over enough time. This will depend on the specific life insurance policy. There will be substantial fees associated with surrendering a policy, and the amount possible from a life settlement is often at least 4 times greater than a cash surrender value.
Return-of-Premium Term Policies
This specific type of policy does include your insurance company paying back the premiums you have paid. These return-of-premium term policies (or riders added to a regular term policy) are advertised as such when you originally purchase them. If you have purchased this specific kind of policy and outlive the term, the insurance company will pay back the amount you have paid them in premiums, without interest. This amount is not taxable, since it’s just returning back to you the money you have paid for the coverage which you didn’t use.
Policy Owner’s Check List
There are many places online that have a list of companies that buy life insurance policies. But choosing a company to work with for such a complex transaction should be more than just picking one from a list. The best companies that buy life insurance policies are going to have several very important qualities that you need to be looking for. Here’s a list of such qualities to be looking for:
- Education Services – helping customers understand exactly what their options are
- Experience – having done it long enough to have developed superior competence with the process
- Reputation – testimonials from clients and word of mouth confirmation of their skill
- Efficiency – ability to move through the process efficiently for timely results
- Transparency – keeping the client informed all the way through the process
- Responsiveness – responding to questions quickly and thoroughly
- Free Consultation – they don’t get paid until the work is done
If selling a life insurance policy that you no longer need is something in which you have an interest, Greg Says can recommend:
Leo LaGrotte
Life Settlement Advisors
llagrotte@lsa-llc.com
888-849-0887