Financial calculations and insurance statements can be overwhelming. On top of that, you might be facing some tough life changes such as a terminal illness that could be forcing you to consider how to sell life insurance policy. Of course, the experts are there to help you and it’s often a good idea to first talk to your life insurance company. Regardless, it’s helpful to have some background information and a few data points before you talk to anyone about selling your policy. After all, knowledge is empowering.
Key Data Points to Sell Life Insurance Policy
Before selling your life insurance, you’ll have to confirm a few key points, as detailed below:
- Term Life Insurance versus Permanent Life Insurance
- Qualify to sell life insurance policy
- General policy and health information
Term Life Insurance versus Permanent Life Insurance
The first thing to note before your sell your life insurance policy is to confirm what type of policy you have. It’s not possible to sell a term life insurance policy. However, most of them will allow you to convert it to a permanent life insurance which can be further split into a whole or universal life insurance. Essentially, a permanent life insurance policy is worth more and is, therefore, more attractive to investors. That’s because of how it’s structured when compared to term life insurance policies.
Qualify to Sell Life Insurance Policy
It’s also critical to check if you meet all the criteria. Otherwise, life settlement companies simply won’t be interested when you try to sell your policy to them. Essentially, selling a life insurance policy is known as a life settlement. The key criteria is that you need to be at least 70 years old.
Having said that, you can do a viatical life settlement. This special approach works if you’re between 60 and 70 and have a terminal illness. That’s because your life expectancy is now less which means that life settlement companies are more likely to get your death benefit payout sooner. At the end of the day, these investors want their money as soon as possible so they let you qualify for a life settlement process.
Last but not least, your life insurance policy needs to have a payout of at least $200,000. This will depend on how long you’ve had your policy for. Nevertheless, you can easily check this in your policy schedule of benefits.
General policy and health information
In order to calculate the value of your life insurance, you’ll need to know your premium payments. In addition, you’ll need the size of your policy and your estimated life expectancy.
Calculate Face Value of the Policy
Before you launch into calculating how much you might get for you a life settlement, it’s worth confirming your death benefit. Sometimes it’s useful to know the downside of a decision so that you can weigh up the pros and cons. When opting for life settlements, you basically give up on your death benefit payout. This number is also referred to as the face value of your policy.
To confirm your death benefit payout is relatively easy. You simply need to sum up all the listed numbers:
- Review schedule of benefits of your life insurance policy
- Add any extra benefits to the total
Essentially, the schedule of benefits lists what your dependents can expect after you die. Although, this is based on potential lost income or pension. Then, it’s easy to include any other benefits you might have included in your life insurance policy. These are often, for example, support for medical costs.
Determine Cash Value of the Policy
If you’re not great with numbers and calculations make you nervous then don’t worry. You can actually find calculators online that can do this for you. Nevertheless, let’s have a look at the overall approach to work out the cash value of your life insurance policy:
- Estimate the value based on expected future cash flow
- Adjust the cash value amount
- Review your potential surrender value
Estimate the value based on expected future cash flow
When investors review any investment, they do what’s known as a discounted cash flow analysis. This is a table that lists all the premium payments starting today until they are expected to end. The final data point in the table also includes the death benefit they’ll receive. They then apply today’s market rate of return to work out what each cash data point would be worth to them today.
From this, they can estimate a total of all those cash points in today’s market. Basically, how much investors are willing to pay you for your life insurance depends on today’s interest rates and how much return they can expect.
Although, don’t forget that you can also use an online calculator if that all seems too complicated.
Adjust the cash value amount
It’s important to factor in the cash value that your permanent life insurance policy has built up over time from your premium payments. With this cash value, life settlement companies can offset some of their early premium payments which they take over from you. This can therefore increase how much your policy is worth.
Review your potential surrender value
Interestingly, there is often a tip-over point with these sorts of financial calculations. It’s therefore also a good idea to also get the potential surrender value from your life insurance company. This will usually be the total of your cash value minus some fee charges. These charges basically cover the life insurance cancellation process.
Where this becomes interesting is if you have a large cash value amount. You could therefore withdraw that lump sum before you surrender your life insurance. This of course reduces the death benefit payout but you could still potentially do a life settlement. At this point, it’s useful to talk to a life settlement broker before you sell your insurance policy for cash though.
Key Takeaways for Calculating your Lump Sum before you Sell Life Insurance Policy
As you can see, calculating how much you might get if you sell your life insurance policy can be a bit complicated. If you’re asking yourself ‘should I sell my life insurance then the good news is that you can find an online calculator as well as a good broker. Between your life insurance company and your life settlement broker, you’ll be in good hands. They’ll make sure to get you all the information and data you need to make your decision.
