When you have a life insurance policy, you are always given a cash surrender value. This means you can terminate the policy with the insurance company and gain the cash surrender value as set forth in the original agreement. However, there is an additional option for people who have no other choice or want to get cash fast for their insurance policy they’ve paid into.
Selling your life insurance policy to a third party can be an effective estate planning option and ends the burdensome premium payment cycles. Selling the policy will provide a lump sum cash payment and will provide more of a lump sum benefit than the cash surrender value. Many people sell their policies to improve their quality of life during the retirement years.
Selling Your Life Insurance Policy
There are two types of settlements involved in selling a life insurance policy. Generally, they fall into one of these two categories.
Life Settlement:
This happens when someone sells their life insurance policy for reasons other than chronic illness or immenent death. People sell according to life settlements for a variety of reasons including the need for money, improving their quality of life, and other reasons.
Viatical Settlement:
Terminal or chronic illness is the sole reason for selling a life insurance policy in this manner. People with degenerative diseases and other terminal conditions are sometimes forced to sell their life insurance policies to combat expenses or improve their quality of life.
A purchaser of a life insurance policy can pick up the life insurance payments where the others ended, and the new owner will receive the full death benefit in the event of their death. Settlements go above and beyond the lump sum amount given according to cash surrender values and ensures that the policy lives on through someone else. Insurance companies like life insurance settlements because the new owner will continue to make payments on the policy. The full amount of the death benefit then goes to the new owner, and the previous owner is compensated with a lump sum amount that they deem to be acceptable.
It’s often asked whether or not there are any possible restrictions on the money received from a lump sum payment. No, there are no restrictions regarding what you can spend the money on or how you spend it. Once you sell your life insurance policy through a life or viatical settlement, your business conduction with the insurance company is over. The money is yours free and clear.