When it comes to life insurance, the decision to sell your policy can be a strategic financial move, especially for those age 70 and above. Understanding the differences between universal, whole, and term life insurance policies is crucial in making an informed decision. This guide will help you navigate the complexities of each policy type and determine the best policy to sell for cash.
Selling a life insurance policy, known as a life settlement, can provide a significant cash payout to policyholders who no longer need or can afford their coverage. There are various types of life insurance policies, each with unique features that impact their value and sale potential. This article will explore whole, universal, and term life insurance policies, offering insights to help you choose the right one to sell.
Universal Life Insurance: This permanent policy type provides flexible premiums and death benefits, along with a cash value that earns interest.
Whole Life Insurance: Known for its permanence, whole life insurance offers lifelong coverage and a cash value component that grows over time.
Term Life Insurance: Unlike the other policy types, term life insurance provides coverage for a specific period of time and does not accumulate cash value. Its primary value lies in the death benefit.
Each of these policies has distinct advantages and limitations when it comes to selling. The following sections will delve into each type in detail, discussing their structure, benefits, and how they impact the ease and profitability of selling.
Universal life insurance is the type of policy most often associated with life settlements. These policies offer flexibility in premium payments and death benefits, along with a cash value component that can earn interest. So long as the required premiums are paid, the policy will generally remain in force until the insured passes, which means investors are far more likely to earn a return on their investment. Additionally, the flexibility of universal life policies (which can include traditional universal life, survivorship universal life, variable universal life, guaranteed universal life, and other variations) can be advantageous when selling the policy, as it may increase the policy’s attractiveness to buyers.
Whole life insurance policies can be appealing to buyers because of their guaranteed death benefit payout, as well as their cash value component. This built-in savings element can be accessed by the policyholder during their lifetime. When selling a whole life insurance policy, the accumulated cash value can add to the value of the policy in an investor’s eyes.
Term life insurance is generally less favorable when it comes to selling the policy in a life settlement. Unlike universal and whole life insurance, term policies are not permanent, and are not guaranteed to pay out a benefit. Only if the insured passes during the policy term (the pre-determined number of years the policy will be active once issued, and assuming premiums are paid on time) will the policy pay a benefit to the beneficiaries. Additionally, term policies lack a cash value component. With those items in mind, term policies can still be sold in a few circumstances.
First, if the policy is convertible, it may be of interest to investors. Convertible term policies have the option to be converted into permanent policies, which are much more favorable for investors. Second, non-convertible term policies can be sold, but generally only in instances where the insured has severely impaired, or even terminal, health.
When deciding to sell your life insurance policy, consider the following factors:
Understanding the differences between whole, universal, and term life insurance policies is crucial when considering selling. Each policy type offers unique benefits and challenges that can impact its sale potential. Consulting with financial advisors or life settlement experts like Lighthouse Life can provide valuable insights and help you navigate the complexities of selling your life insurance policy. By making an informed decision, you can optimize the financial benefits and ensure your needs are met.