If you decide that you no longer want or need a life insurance policy that you own, you may be able to sell it in the secondary market for life insurance. Life settlement companies buy existing policies from individuals who are interested in converting a future benefit into an immediate cash payout.
Life settlement companies are not insurance companies. They are investors whose business it is to buy existing life insurance policies and earn a return on their investment. In order to sell your life insurance policy, it must first be valued. Valuation is determined by a number of factors that include the face value of the policy, the cash value, and your life expectancy.
After your policy is valued, one or more life settlement companies may be interested in making you an offer for your policy. The amount they offer will be more than the surrender value of your policy, but less than the death benefit amount. Having a shorter life expectancy will increase the dollar amount of the offer. If you are 80 years old and only expected to live for three more years, you will get a higher percentage of the face value (death benefit) of the policy as opposed to being 70 years old and having a 10-year life expectancy.
When you sell your life insurance policy, the buyer becomes the owner and beneficiary of the policy. The new owner must continue to pay the premiums up until your death in order to be able to collect the death benefit. If you should live longer than expected, the return to the buyer is less, Conversely, if you should die sooner than expected, the buyer will earn a greater return on investment.
If you are considering the sale of your policy, make sure you get your policy valued and get offers from multiple parties interested in buying your policy. The secondary market for insurance is competitive. Just like you benefit by getting multiple quotes when you need auto insurance, you will benefit when you (your broker) solicit offers from multiple interested buyers.