Fact Sheet Number 104
YOUR LIFE INSURANCE
- WHY DO PEOPLE SELL THEIR LIFE INSURANCE
POLICIES?
- WHO BUYS LIFE INSURANCE POLICIES?
- HOW CAN I SELL MY LIFE INSURANCE POLICY?
- WHAT ARE THE CRITERIA FOR BUYING A
POLICY?
- HOW MUCH WILL I GET?
- WHAT ARE MY OPTIONS?
- PRO . . .
- . . . AND CON
- HOW DO I CHOOSE A COMPANY TO BUY MY
POLICY?
- THE BOTTOM LINE
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PrintSELL THEIR LIFE INSURANCE POLICIES?
Many people with life-threatening illnesses decide to sell their
life insurance policies to provide extra cash for various expenses.
Life insurance is usually a way to provide cash to your survivors.
There may be other ways to supplement your own resources and still
provide for the beneficiaries of your life insurance policy.
INSURANCE POLICIES?
Investors buy life insurance policies from people who are not
expected to live very long. The investors buy the policy at a
discounted rate. When the person who sold the policy dies, the
investor receives the full amount of benefits from the insurance
company.
MY LIFE INSURANCE POLICY?
Selling a life insurance policy is called “viatication”.
If you want to sell a life insurance policy, you can sell it directly
to a viatical investment company, or you can deal with a broker.
A viatical investment company finds investors who want
to buy life insurance policies, and it finds people who want to
sell policies. The company pays the person selling their policy,
and when the person dies, the company receives the life insurance
benefits and pays the investors.
A broker normally takes applications from people who
want to sell their policies, and presents the information to several
different viatical companies. Brokers will try to find the highest
price available for someone’s life insurance policy. The
more companies a broker deals with, the better. Your policy should
be reviewed by at least 3 companies.
FOR BUYING A POLICY?
Each company sets its own guidelines for deciding how much it
will pay for a policy, and whether there are any other conditions
that must be met. Normally, to sell a policy, you will need to
meet several conditions:
- Have owned the policy for at least two years with no pre-existing
HIV conditions noted.
- Have permission from the owners or beneficiaries of the policy.
You may need your employer’s permission to sell a group
policy you got as an employee.
- Have a terminal illness. Usually, a doctor needs to say that
you have a limited life expectancy. The more medical problems
you document, the higher the bid you may get for your policy.
If you have a high T-cell count, viatication may not be a good
option.
Viatical companies may have other rules about the types of
policies they will buy, or the insurance companies they will consider.
The companies normally will review your medical records and decide
how much they would be willing to pay. The whole process usually
takes about 6 weeks to 3 months.
I GET?
The amount you will receive for your policy depends mostly on
how much longer you are expected to live. The sooner the investors
will receive the life insurance benefits, the more they are willing
to pay.
Before potent antiviral medications were available, viatical
companies paid as much as 85% of a policy’s face value. Since
the introduction of effective therapies, offers have fallen to
around 30% of face value.
The viatical industry is new, and was started because people with
AIDS were becoming bankrupt due to their medical expenses. However,
you may not have to sell your life insurance to get money from
it. Check with your insurance agent to see if you can:
- borrow against your insurance policy, sometimes at
a very low interest rate;
- cash out the policy. See if it has a “surrender
value”.
- use “accelerated benefits”, or “living
benefits” to pay you while you’re still living.
On the plus side, you might want to sell your life insurance policy
because:
- You will receive a lump sum cash payment for your policy.
- You can do whatever you want with the money.
- You won’t have to pay any more life insurance premiums.
- You might receive more than the current cash value of the
policy.
- You don’t have to pay the money back, like you would
if you borrow against your life insurance policy.
- In some cases, the money you receive is tax-free.
Selling your life insurance policy can have some disadvantages,
including:
- You might lose your eligibility for some public assistance
benefits. This would most likely happen for benefits that are
based on your income and assets, such as food stamps, Medicaid,
welfare, and some Social Security benefits.
- Your life insurance benefits won’t be available when
you die. If you wanted money to go to certain people or organizations,
you would have to make those gifts from the money you get for
selling your policy.
- People might learn about your health status during the process
of selling your policy.
A COMPANY TO BUY MY POLICY?
Check with the state insurance department to see if viatical companies
are licensed. Be sure to get offers from several companies.
An organization that represents viatical companies is the Viatical
and Life Settlement Association of America, Washington, DC, (202)
429-5129; http://www.viatical.org
An Internet web site with independent information is Viatical
Settlements Information at http://www.viatical-expert.net/
If you have a life insurance policy, you may be able to sell it
and use the money however you want to. There are many companies
that buy life insurance policies. Each company will have its own
procedures and will come up with its own offer for your policy.
Shop around for the best offer.
Selling your life insurance might affect your income taxes
or financial benefits that you currently receive. Be sure to get
good advice before selling your policy.
Revised July 26, 2002
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