- Accumulated Value vs. Cash Surrender Value
- Difference Between Universal Life & Whole Life Insurance
- The Advantages of Whole Life Insurance vs. Fixed Annuities
- What Is Graded Benefit Whole Life Insurance?
- Zero-Deductible Health Insurance Plans
- How to Take an Assignment on the Cash Value of a Life Insurance Policy
If you have a life insurance policy but need money immediately, you can sell the policy for less than the face value. The buyer, a settlement company, pays the insurance premiums and receives the policy's proceeds when you die. You must own the policy before you sell it. If you're the insured person but not the policy owner, you must contact the insurer and make arrangements to have the policy put into your name. If you're in good health, you may sell your policy using a life settlement agreement. If you're terminally or chronically ill, you can sell your policy using a viatical settlement agreement, but you must meet the definition of terminally or chronically ill used by insurers in your state. Both agreements have the same application process and potential drawbacks you should consider before selling your policy.
Find a Settlement Company
You'll need to find a life and viatical settlement company. Different companies have different rates and requirements, so you will want to get offers for your policy from more than one company. Check each offer's fine print and fee schedule. Once you've received offers from the life settlement companies operating in your area, you'll need to check the background of each company to confirm you are dealing with a reputable business. Check each business with your state's insurance department and Better Business Bureau. The state insurance department can tell you about any violations or scam allegations involving the companies you're considering, and the BBB has company ratings based on reports from other consumers. Select the highest-rated company giving you the best offer.
You also may hire a settlement broker to help you find a company. If you decide to hire a broker, check with your state insurance department to confirm the broker you want to use is licensed in your state. You shouldn't have to pay fees to use a broker.
You'll have to fill out an application for the settlement company. Application formats vary by company, but you'll need your personal details, such as age, address and birth date, as well as information about the policy you're selling, including the insurance company and policy amount. You'll need to provide the settlement company with information about your health. The buyer of the policy will have access to your medical records once you sign the medical release. Once you're approved and you accept the offer, you'll be required to sign more paperwork to receive your check, including the settlement agreement that has all the terms of your offer. Check all documents thoroughly before signing to ensure the information is correct.
While proceeds from a life insurance policy are not taxable, proceeds from a settlement agreement are. You or your estate will be responsible for any income taxes on the settlement amount you received. Any creditors you owe may be able to make a claim on your settlement proceeds for the debt. If you're currently receiving government assistance, such as food stamps, or any benefits that take your income and financial resources into account when determining eligibility, the settlement money may cause you to lose the benefits. Settlement companies sometimes sell policies bought using settlement agreements to other companies. If your policy is resold, the buyer will receive access to your health information.
You do have a period of time during which you can cancel the agreement after you sign the application or receive the check. The time period for cancellation varies by state. For example, in Maine, you can cancel up to 30 days after you sign the settlement agreement or up to 15 days after you receive the settlement check. But in Hawaii, you may cancel within 60 days of signing a life settlement agreement or within 30 days of receiving your check. If you die before the cancellation period is up, the deal automatically cancels by law in Hawaii. Your life insurance beneficiary will receive the insurance proceeds instead of the buyer, but the beneficiary must repay the buyer any money you received and any premiums the buyer paid on your policy. Contact your state insurance department to find out what the cancellation periods are in your state.
Taking a life or viatical settlement may affect your ability to get life insurance in the future. You'll want to speak to your insurer and the settlement company to see how the settlement will affect your insurability. Your insurance policy may have provisions that allow you to take some money early. If you have a policy with a cash value, you may be able to take a loan out against the cash value without ending the policy. If you're terminally ill and your policy has accelerated death benefits, you might be able to receive a percentage of your policy's face value from your insurance company before your death.
- Jupiterimages/Photos.com/Getty Images