If you have a policy in hand that is no more useful and would rather get rid of it for instant cash, a ‘life settlement’ is something you might need. When you sell your policy to a third party for cash, you call it a life settlement. While you won’t receive the cash value equivalent to the death benefit, you still get more than the policy’s cash surrender value.
While it sounds as simple as that, there are some questions you need to ask before selling term life insurance policy for cash. This is because the industry is relatively new and you need to protect yourself from a transaction that can cause you a loss. Here’s a list of question you should ask to keep yourself protected when selling your policy.
IS THE BROKER/PROVIDER LICENSED?
As already mentioned, the life settlement industry is still growing and evolving. The only way you can make sure the transaction is safe and reliable is by working with a professional who is licensed in your state. While brokers may or may not be fully state-regulated, life settlement providing companies can only function when they have a license. This is why working with life settlement providers is far better than brokers. However, make sure you visit the provider’s website or office and check if they are licensed before embarking on this journey.
WHAT HAPPENS TO MY POLICY?
Most people hardly ask this question to their broker or provider when they plan to sell their life insurance policy. However, it’s an important concern. Ask your provider whether your policy will be sold individually or in bundles. It’s preferable that your policy is sold in bundles so that one ultimate buyer doesn’t get benefitted from your death. As you can imagine, when a buyer pays for your premiums, has every detail about your health, and ultimately gets benefitted from your death, there can be foul-play.
WHAT INFORMATION DO I HAVE TO PROVIDE?
Since the value that a buyer decides to pay for your policy depends mostly on your medical status, the buyer would need access to your medical history and current medical status. Besides these two aspects, the buyer would also need information regarding your policy. As you finalize selling your policy to a buyer, you have to sign a release that authorizes the broker/provider/buyer to have access to the above-mentioned information about yourself.
Once you transfer the ownership to the buyer, the buyer would still get updates regarding your health status.
CAN I REQUEST CONFIDENTIALITY?
Yes. When you provide the above-mentioned personal information to a broker or a provider, read through the application to see that they keep your information confidential. When the broker or provider has to provide information regarding your health and policy to a third party, they need to first seek your approval before proceeding.
HOW CAN I GET BEST PRICE?
Since there aren’t many life settlement companies as of now, there is a lack of transparency or exact values that can be assigned to policies. This means that life settlement companies can quote the price they want. So, it can be tricky to get the right amount of money when selling your policy. One possible way to make sure you get the best deal is to get quotes from different life settlement companies. When you do so, you will have different rates, and you can decide to strike a deal with the company that assigns the highest price to your policy.
ARE THERE TAXES INVOLVED?
Yes, taxes are involved when selling term life insurance policy for cash. Since you receive a lump sum payment upon selling your life settlement policy in exchange for a life settlement, the money you get may be taxable. To get the math done right, you should seek assistance from a tax or financial professional.
CAN I WALK OUT AFTER GETTING A QUOTE?
Getting a quote is your right. Without knowing how much money you can get upon selling term life insurance policy for cash, it’s difficult to decide if you would want to sell the policy or not. Moreover, if a broker or life settlement providing company pressurizes you to sell your policy, you can seek legal help.
These are some questions, which upon asking, you can make the right decision to protect yourself. While selling a policy for a life settlement is a tricky business currently, as the industry matures, we can expect it to get better with time.