Is It a Good Idea to Sell Your Life Insurance Policy?

Depending on your circumstances, selling a life insurance policy could be beneficial.

ssguy/Shutterstock

You may have seen commercials from companies trying to convince you to sell your life insurance policy. It’s called a life settlement, and you sell it to a third party called a life settlement provider.

Life settlements are gaining popularity mainly because more people know they are available. But how deep does this knowledge go? What happens when you sell your life insurance, and is it a good financial move?

What Happens When You Sell a Life Insurance Policy?

When you sell your life insurance policy, a third party purchases your life insurance for a cash payment less than the full death benefit. The buyer then becomes the new owner and beneficiary of the policy.

They will pay the premiums and receive the death benefit when you die.

So, when you sell your life insurance policy, all rights go to the buyer, and you are no longer responsible for the premium. It also means your heirs won’t benefit from the life insurance policy when you pass.

If you’re interested in selling your life insurance policy, you can contact a life settlement broker. This is a company or person who represents you. They will comparison shop for offers. The buyer pays the broker if the sale is completed.

What Are the Requirements to Sell a Life Insurance Policy?

According to Life Settlement Advisors, there are some qualifications that must be met before you can sell your policy.

The policy must be at least two years old, and it must also be either a universal life, whole life, second-to-die, or convertible term policy.

You must be 65 years or older to sell a life insurance policy. But, individuals with a life expectancy of 15 years or less also are candidates for a life settlement.

The policy’s death benefit must be worth a minimum of $100,000 to qualify.

How Much Will You Be Paid for Your Life Insurance Policy?

Unfortunately, you will not be paid the policy’s face value. So if you have a $1 million policy, don’t expect the full amount.

According to Ramsey-Weeks Insurance, you'll receive between 10–25 percent when you sell your policy.

For example, if you have a $100,000 life insurance policy, the selling price would be $25,000 if you received 25 percent.

According to Annnuity.org, factors that influence the amount you’ll be paid include:

• Health and age: buyers may offer a bigger payout to older sellers with health conditions
• Amount of premium: policies with lower premiums are more attractive
• Size of death benefit: policies with modest benefits aren’t worth as much

It’s not necessary to accept the first offer. You can negotiate with buyers before accepting an offer.

Will You Owe Taxes If You Sell a Life Insurance Policy?

Typically, if your beneficiaries inherit your life insurance policy, they usually don’t pay taxes on it. But it can be different when you sell a life insurance policy.

There are tax consequences to selling a life insurance policy. But it depends on your circumstances as to how you will be taxed.

They could be taxed as ordinary income or capital gains.

According to the business law firm SFBBG, you are not taxed on the amount of the premiums paid. But you would be taxed on the amount over the premium amount that you earned.

For example, if you paid $50,000 in premiums (cost basis) and received a $65,000 life settlement, you would owe taxes on the $15,000 difference.

If $15,000 is less than the policy’s cash surrender value, it will be taxed as ordinary income.

Any sale amount exceeding the cash surrender value is subject to capital gains tax.

If you sell the policy for less than the premiums, you will not be taxed. It is considered a loss.

According to Lighthouse Life, under certain scenarios, you may be exempt from taxes when you sell your life insurance policy. For example, if you’re terminally or chronically ill, a portion of or the entire proceeds may be tax-free.

Reasons to Sell a Life Insurance Policy

There are several reasons people choose to sell their life insurance. Many individuals who don’t have anyone financially dependent on them or have heirs are motivated to cash out and use the money for themselves. Others have found themselves overinsured.

If someone finds themselves unable to continue paying premiums, selling is a good option.

Seniors who want to fund retirement needs or must pay for long-term care may decide to sell their life insurance policies.

Selling a Life Insurance Policy Depends on Your Circumstances

Depending on your circumstances, selling a life insurance policy could be beneficial. Although you will be paid less than the benefit, there may be some tax implications.

Ensure you discuss your situation with a financial advisor or a life settlement broker. You want representation that works in your favor.

The Epoch Times copyright © 2025. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.