To most financial advisors, obtaining a life insurance policy is a significant aspect of estate planning and wealth protection. For this reason, they’d suggest that people with a chronic illness and those in good health get a life insurance policy. Getting life insurance can give people with dependents peace of mind that their family members will have financial support when they die or can no longer provide for them. When getting a life insurance plan, the policy owner names beneficiaries who can receive an inheritance from the policy. People typically choose their spouse or any children to be beneficiaries.
In cases where the insured person dies before the end of their life insurance policy term, their beneficiaries receive a payout of the policy proceeds—a payout known as the death benefit. The policy’s death benefit is typically a lower amount than the policy’s cash value. Death benefits can help ease the financial strain of injury, illness, and death for the policy owner’s living dependents. Insured policy owners must pay the required monthly premiums and keep their policies active to ensure their selected beneficiaries can receive the death benefit.
Alternatively to the death benefit, there are ways for policyholders to obtain funds from their life insurance policies during their lifetime. One such way is to sell their life insurance policy. It may be a surprise to some, but insured policyholders can sell their life insurance. Explained below are common reasons people sell their life insurance and ways to make such transactions with settlement providers.
A policyholder may sell their insurance policy if it’s too expensive or isn’t necessary.
Some insured people may want to sell their insurance policy because they can’t afford their premiums. Their premium payments may compete with other expenses in their budgets, such as grocery shopping, medical expenses, or household bills.
In other cases, policyholders may decide they don’t need this protection for their families anymore if their beneficiaries are adults with their own families and income.
The sale of a life insurance policy could result in money people could use for other expenses.
Selling an unnecessary life insurance policy for an immediate lump sum of cash can give you money to use for a vacation or a new home for your retirement. With money from a life insurance sale, homeowners could even afford to complete costly home improvement projects instead of buying a new property.
Additional funds can help you pay for bathroom remodeling, major or minor kitchen upgrades, new carpeting or hardwood flooring, and other home improvement and remodeling projects. Consider completing exterior home renovation projects as well. Renovations, such as a garage door replacement or a new roof, can help you enhance your home’s curb appeal, ultimately increasing your home’s value.
Receiving Funds from a Life Insurance Policy
In most cases, people can sell a life insurance policy to a related party, such as a relative, or an unrelated party like a life settlement company or viatical settlement company that buys policies and offers viatical settlements to policyholders. Insured people interested in selling their policies may ask, “what is a viatical settlement?“ A viatical settlement transaction is the sale of a policyholder’s current life insurance policy to a third party—usually a viatical settlement company—for less than the policy’s death benefit but more than its cash surrender value.
Viatical settlement companies make viatical settlement offers to insured people with terminal illnesses (“viators”). They buy viators’ insurance policies, giving them a lump sum payout that helps them handle any end-of-life expenses. These settlements are specifically available to terminally ill patients with a two-year life expectancy, differentiating them from life settlements. Insured people in good health are eligible for life settlements of lump-sum payouts offered by life settlement companies.
Life settlement and viatical settlement transactions stem from the 1911 United States Supreme Court case Grigsby v. Russell. In Grigsby v. Russell, the Court ruled that life insurance policyholders have the right to allow related or unrelated parties to purchase and take ownership of their life insurance policies. If you qualify for these settlements based on your health status, consider them as options for selling your life insurance and gaining access to funds that could come in handy.
