UPDATED: Nov 26, 2011

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Written By: Laura BerryReviewed By: Daniel WalkerUPDATED: Nov 26, 2011Fact Checked

In many circumstances you can sell a life insurance policy. If you’ve purchased a term life insurance policy that you no longer need or want, is the best course of action to simply allow it to lapse? Probably not. Since a term life insurance policy has no cash value attached to it, simply allowing it to lapse means you will lose all of the money you’ve paid in premiums. Perhaps a better option is to sell your term policy to an investment company who will at least allow you to get some money out of it.

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It may seem odd that you can sell a term policy with no cash value attached to it, but you can as long as your policy is convertible. However if your policy is not convertible, you won’t be able to sell it. Therefore, it’s important to know what type of term policy you’re purchasing if you think there’s a chance in the future you might want to turn around and sell it. Candidates for this type of term life insurance would include those who also have annuities or whole life policies and decide they no longer have a need for their term policy.

What is a convertible term life insurance policy?

A convertible policy is one that can be converted from term life into a whole or universal life policy. The latter two types of life insurance have cash value built-in and are considered to be investment vehicles as well as insurance policies. Certain investment companies are willing to purchase convertible policies from you because they can then finish making the remainder of the premium payments as investments that will provide a return for them upon your passing.

Understand that when you sell your life insurance policy, your beneficiaries are automatically removed and replaced by the company purchasing the policy. When you pass on, the death benefit is paid to the company who purchased your policy rather than your family.

This is something you should absolutely avoid if your family is counting on that death benefit at the time of your passing. There has been more than one occasion when an individual has sold a term life policy without telling anyone, thus being a surprise to family members upon his death.

How much cash will I see from selling my life insurance?

How much cash you’ll actually get out of selling a term life insurance policy depends on your age, the monetary value of the death benefit, and how long you’ve been paying into the policy. If you are carrying a $500,000 policy, you’re not going to see that much in terms of the purchase price. The investment house making you the purchase offer will use its own formula to determine what it believes the actual cash value of your policy is, and offer you that amount.

You also need to be aware that most term life insurance policies that are convertible have a minimum settlement period. This is typically the first two to five years of the policy in which you cannot convert or sell it. The purpose of this settlement period is to prevent individuals from purchasing life insurance policies and then turning around and selling them almost immediately. If life insurance companies failed to guard against this practice, they could potentially lose a lot of money on such individuals when they eventually die.

Is there a reason I shouldn’t sell my life insurance policy?

One of the things that sometimes drive people to sell insurance policies is a shortage of cash for necessary bills. If you absolutely must sell yours, because you can’t keep up with your bills and your policy will lapse anyway, then there’s really not much you can do. Go ahead and sell it. However, if you can reduce your expenses in other ways you’re better off protecting your life insurance policy.

Perhaps you can cancel the cable or satellite TV, reduce your high speed Internet to a lower speed, or forgo purchasing a brand-new car. All of these options are better than selling a life insurance policy.

Remember that the reason you purchased your life insurance policy to begin with is to provide for your family upon your passing. Far too often, individuals sell their policies because they need cash, intending to purchase a new policy in the future. Equally as often, financial problems continue for years on end and a new policy is never purchased. If you should pass on earlier than you were expecting, your family may be left not only with a sizable debt, but also no life insurance to help pay for your funeral expenses.

Is there anything else I should know about selling my life insurance policy?

Whenever you’re buying or selling anything on the open market it’s always important to make sure you are dealing with reputable individuals or companies. Selling a life insurance policy is no different. Remember that whoever is offering to purchase your policy is relying on your eventual death. In and of itself this is an unusual kind of business deal. Making things worse, there are dishonest companies that may try to take advantage of you in any number of ways.

Be careful to research any company in which you are considering selling your life insurance. Look them up online, check with the Better Business Bureau, check with your state insurance agency, and ask family and friends. This is one area where you don’t want to simply trust the first person who comes along. If you end up with a dishonest purchaser, it could cost you a lot more than it would have to simply hold on to your life insurance policy. Remember the old adage, “buyer beware.”

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A former insurance producer, Laura understands that education is key when it comes to buying insurance. She has happily dedicated many hours to helping her clients understand how the insurance marketplace works so they can find the best car, home, and life insurance products for their needs.

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Written by Laura Berry
Former Insurance Agent Laura Berry

Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years. He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like Reviews.com.

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Reviewed by Daniel Walker
Licensed Car Insurance Agent Daniel Walker