What You Need to Know Before Selling Your Life Insurance Policy

Selling your life insurance policy may sound like a good idea—especially if you are extremely sick and need cash right away or cannot afford the new premiums. There are a lot of companies that buy life insurance policies. When they buy a policy, they pay you up front and take over payment of the premiums. You benefit by getting more money out of your policy than if you cancelled it or surrendered it. And that all sounds great but keep in mind the reason you got a Life Insurance policy to begin with.

Here are some things to consider before making the decision to sell your policy:

Check with your current life insurance company and see if they offer an accelerated death benefit. An accelerated death benefit is when the insurance company allowes the insured to collect part of their death benefits before they die. You may be charged a fee for acting on it, but at least you will be doing business with a company you know and trust.

Not every life insurance policy can be sold. In general, the policy holder usually has to be age 55 or older with a life expectancy between 2 and 12 years. The insurance policy has to be transferable. It must be a universal life, variable universal life, second-to-die or term life policy. Face amounts need to be at least $100,000.

Public assistance is typically based on financial need, so if you go through a viatical life settlement, you may hinder the amount of assistance you get, as well as opening yourself up to creditors—because viatical life settlement proceeds are fair game in the financial world.

Ask if the proceeds will be tax-free and what kind of impact it will have on probate and estate settlements. According to the Health Insurance Portability and Accountability Act, if the insured is terminally ill the settlement is not subject to federal income taxes; but if the insured is mildly ill or healthy, the settlement will be taxed as a capital gain.

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