Consider This Before you Sell Your Life Insurance Policy

In my last post I talked about using a life settlement to sell your life insurance policy to an investor. In this post I'll give you a few things to consider before you sell your policy.

Competition and Fees

If you decide to sell your policy you need to talk to several brokers. The amount you will get for your policy and the fees that will be charged will vary from company to company. While this industry has grown, forcing the settlement companies to be more competitive, the best deal is not going to just fall into your lap.

Will you need life insurance?

While the early cash payout sounds good, you need to make sure that you don't need the life insurance and most likely will never need life insurance in the future. It may be very difficult to get another policy if you change your mind in the future. For one thing you will be older and possibly have worse health, which will lead to higher rates or may make you uninsurable. Also, most life insurance companies collectively will only allow someone to have a certain amount of life insurance. Life insurance companies get nervous when one life has a lot of life insurance coverage. If you were already at or near the maximum amount of insurance that most carriers will allow with the policy you sold then it will be difficult to buy another policy.

Income Taxes

Life insurance death benefits are paid tax free to the beneficiary when you die. In most situations life settlement payouts are considered ordinary income and will be taxed as ordinary income. So when you are comparing your options of keeping the policy versus selling it be sure and reduce your settlement for the taxes you will have to pay. As always, when dealing with taxable events, I would recommend you talk to a tax accountant that has experience with people in your situation. Getting professional tax advice on this topic is becoming increasingly more important as several states have recently passed laws addressing life insurance settlements.

Larry King's Problem

Larry King is the most public example of life settlements gone bad. Larry King sold a couple of very large life insurance policies in 2004 for over $1,000,000. It seemed like a good deal at the time, but now he is involved in a lawsuit with the company that set up his settlements. The basics of his argument was that he was mislead and that he should have gotten more for his policies and that he was mislead about several details of the process. For more details please read, Larry King Sues Over Life Settlement Deals. This does not necessarily mean that all life settlements are bad, but it just brings to light the information that you need to gather before you sell your policy to a life settlement company.


Michael, Garden State Life Insurance