Can I Sell My Life Insurance Policy? What You Need to Know

Can you sell your life insurance policy? The short answer is yes. Life insurance policies are personal property, and you have the right to sell yours just like you could sell a car or a house. The Supreme Court established this over a century ago, and today there is an entire secondary market built around purchasing policies from people who no longer need them.

But the more useful answer is: it depends. Just because you can sell your policy does not mean you will attract buyers or get an attractive offer. Certain factors make a policy sellable, and certain factors make it valuable. Let me walk you through how to figure out where you stand.

The Legal Foundation

First, let me address any concerns about whether this is even legitimate. Selling a life insurance policy is completely legal in the United States. The transaction is called a life settlement, and the industry is regulated in 45 out of 50 states.

The legal right to sell your policy dates back to a 1911 Supreme Court case called Grigsby v Russell. The court ruled that a life insurance policy is an asset like any other, and the owner has the right to transfer or sell it. The buyer does not need to have an insurable interest in the insured person. This decision created the legal foundation for a secondary market in life insurance.

Today, licensed life settlement providers operate in most states, subject to regulations that protect consumers. These are not fly by night operations. They are legitimate businesses that have to follow strict rules about licensing, disclosure, and fair dealing.

Age Requirements

The most common eligibility requirement is age. Most life settlement buyers are looking for policyholders who are 65 or older. Some will consider people as young as 60, but it is unusual. If you are 55, you are almost certainly too young to sell your policy through a life settlement.

Why the age requirement? It comes down to economics. Buyers are purchasing your policy at a discount to the death benefit, then paying premiums until the policy matures. The longer they expect to wait, the less attractive the deal becomes. An older policyholder means a shorter expected wait time, which means better returns for the buyer.

There is an exception for younger people who have been diagnosed with a terminal illness. These transactions are called viatical settlements rather than life settlements, and they are available regardless of age. If you are 45 and have been told you have two years to live, you may well be able to sell your policy. But absent a serious health diagnosis, you need to be in your mid 60s or older.

Health Status

Here is where things get counterintuitive. In life insurance, being healthy is good. In life settlements, being healthy is actually a disadvantage.

Buyers want policies where the death benefit will be paid sooner rather than later. That means they prefer policyholders with health conditions that reduce life expectancy. If you are 72 with diabetes, heart disease, and a history of cancer, your policy is more valuable than if you are 72 and in perfect health.

I know this sounds backwards, but think about it from the buyer's perspective. They are paying premiums every month while waiting for the policy to mature. The longer they wait, the more premiums they pay and the lower their return. A policyholder with a shorter life expectancy means fewer premium payments and faster return on investment.

When you apply to sell your policy, you will need to authorize the release of your medical records. Buyers will have their own medical underwriters review your health history and estimate your life expectancy. This life expectancy estimate is one of the biggest factors in determining what your policy is worth.

If you are in excellent health for your age, you might still be able to sell your policy, but do not expect top dollar. The offers will reflect the fact that buyers expect to wait longer for the death benefit.

Policy Type

Not all life insurance policies can be sold. The type of policy you own is a major factor in determining eligibility.

Permanent life insurance policies are the most sellable. This includes whole life, universal life, variable universal life, and indexed universal life. These policies remain in force as long as premiums are paid, which makes them attractive to buyers who want certainty.

Term life insurance is trickier. A standard term policy cannot usually be sold because it will expire at the end of the term, leaving the buyer with nothing if the insured is still alive. However, if your term policy has a conversion rider that allows you to convert it to permanent coverage without a medical exam, that makes it potentially sellable. Buyers can convert the policy themselves after purchasing it. Learn more about selling your term life insurance policy and what options you have.

If you have a term policy without a conversion option, your chances of selling it are slim. Check your policy documents or call your insurance company to find out if conversion is available.

Policy Size

Buyers prefer larger policies because the transaction costs are similar whether the death benefit is $100,000 or $1,000,000. That makes bigger policies more efficient.

Most buyers have minimum thresholds. A common minimum is $100,000 in death benefit, though some will consider policies as small as $50,000 or $75,000. If you have a $25,000 policy, you will have difficulty finding a buyer.

There is no real maximum. Policies with death benefits of $5 million, $10 million, or even more can be sold. Larger policies may actually attract more buyer interest because of the better economics.

Premium Costs

The cost of keeping your policy in force affects its value. Lower premiums make a policy more attractive to buyers because they will spend less while waiting for the death benefit.

This is one reason why older universal life policies can be surprisingly valuable. Many UL policies from the 1980s and 1990s were sold with very low premium guarantees based on interest rate assumptions that never materialized. These policies might have premiums far below what a new policy would cost today, making them attractive to buyers despite other factors.

On the flip side, if your policy has extremely high premiums relative to the death benefit, buyers will offer less to compensate for the carrying costs they will incur.

Insurance Company Ratings

Buyers care about whether the insurance company will actually pay the death benefit. If your policy is with a financially shaky insurer, buyers might be hesitant or might demand a larger discount.

Most policies are with major carriers that have strong financial ratings. If your policy is with MetLife, Prudential, New York Life, or a similarly established company, this will not be an issue. But if your policy is with a smaller or less established carrier, buyers will scrutinize the financials more carefully.

State Regulations

Life settlements are regulated in 45 states. If you live in Alabama, Wyoming, South Carolina, South Dakota, or Missouri, your state does not have specific life settlement regulations. This does not mean you cannot sell your policy, but it does mean fewer consumer protections apply.

Some states require a waiting period after a policy is issued before it can be sold. This is typically two to five years. If you bought your policy recently, you might need to wait before a sale is possible.

How to Find Out If You Qualify

The best way to determine if you can sell your policy is simply to apply. Life settlement companies will evaluate your situation at no cost and tell you whether you qualify for offers.

You will need to provide basic information about your policy, including the death benefit, policy type, and premium amounts. You will also need to provide information about your health or authorize access to your medical records.

If you qualify, you will receive offers from buyers. If you do not qualify, you have lost nothing but a little time.

Alternatives to Consider

Before selling your policy, make sure you have considered the alternatives.

• If your policy has cash surrender value, you can surrender it back to the insurance company. The payment will be less than what you might get from a life insurance buyout, but the process is simpler.
• If your policy has an accelerated death benefit rider and you have been diagnosed with a terminal or chronic illness, you may be able to access part of the death benefit while still alive without selling the policy.
• If your policy allows loans against the cash value, you can borrow money while keeping the policy in force.
• If premiums are the issue, some policies allow you to reduce the death benefit in exchange for lower premiums.

A life settlement makes the most sense when you no longer need the death benefit and want to maximize the value you extract from the policy. If you still need coverage or have other options that preserve the policy, those might be worth exploring first.

What Happens After You Sell

If you do sell your policy, here is what to expect.

You receive a lump sum payment, typically deposited directly to your bank account. The payment is generally taxable, though the exact treatment depends on your situation. Consult a tax professional before finalizing any sale.

The buyer becomes the new owner and beneficiary of the policy. They take over premium payments from that point forward. You have no further obligations.

When you eventually pass away, the buyer collects the death benefit from the insurance company. Your family or previous beneficiaries receive nothing from the policy.

The buyer may contact you periodically to verify you are still alive. Regulations limit how often they can do this. If your life expectancy is more than a year, they cannot contact you more than once every three months. If your life expectancy is a year or less, they can contact you monthly.

The Bottom Line

Yes, you can sell your life insurance policy if you meet certain criteria. You generally need to be 65 or older, own a permanent policy or convertible term policy, have a death benefit of at least $100,000, and have some health impairment that makes your policy attractive to buyers.

Not everyone will qualify. Not every qualifying policy will receive an attractive offer. But for those in the right situation, selling a life insurance policy can generate significant cash from an asset that might otherwise lapse or surrender for a fraction of its value.

If you think you might qualify, the only way to know for sure is to get a valuation. It costs nothing to find out what your policy is worth.

Disclaimer: The information provided in this article is for general informational purposes only and does not constitute legal, financial, or professional advice. Life settlement regulations vary by state, and this content should not be relied upon as a substitute for consultation with a licensed professional. Please consult with a qualified attorney, financial advisor, or licensed life settlement broker before making any decisions regarding the sale of a life insurance policy.