There are two types of markets, the primary market, and the secondary market. A primary market is a place where business entities that write insurance policies exist. In short, investing in policies is done in this market. Whereas a secondary market is a place where you can sell your policy to various individuals or companies. Basically, such buyers exist only to purchase various policies to realize the benefits after the death of the insurer. However, a few purchasers buy these policies to re-sell them to institutional investors by bundling it into multi-million dollar packages.
The most common query among policyholders is “whether can you cash out a term life insurance policy?” and the answer is affirmative; however, you can consider the following important things for an effective selling experience.
THINGS TO UNDERSTAND BEFORE SELLING IN SECONDARY MARKET
Generally, there are two types of settlement, the viatical settlement and the life settlement.
- If you’re giving up your policy on account of terminally ill-health where you have a low life expectancy, then you can ideally opt for a viatical settlement. Whereas, if you’re giving up your policy on account of the need for cash and you have a long life expectancy, then you can opt for a life settlement.
- It’s important to note that both types of settlements have the same working procedure and outcome. You give up on the policy for cash where your buyer gets the benefits on account of your death; this means that your heirs will not receive any benefits
In addition to selling your policy, there are other alternatives available too; surrendering of the policy, obtaining loans through the policy, withdrawing money from the policy and stopping the payment of the premium amount.
If you wish to maintain your policy but require cash for immediate use, then options like obtaining loans and withdrawal of money are good choices. This means that you can apply for short-term loans by using your policy as collateral; the good side of this loan is that you don’t require special qualifications to obtain the same.
On the other hand, you can withdraw the allotted amount from your policy; you can contact your life insurance provider to know the allowed limits.
If you would like to give up on the policy completely, you can opt to surrender the policy to the company, or you can rightfully stop paying the premium amounts. When you opt for the former, you will be given cash in return from the company while in the latter method, you will not get the cash and the company holds the policy for itself.
On calculating the value of your policy, various factors will be considered; your life expectancy, a possible cure for your disease, the face value, the cash value, and your gender.
- In case of life expectancy, the value of your policy tentatively increases as far as your life expectancy lowers; this is because buyers usually want to pay premiums for a short period of time and receive the benefits as soon as possible.
- The next factor is the consideration of a possible cure. This means that if you’re diagnosed with a life-threatening disease and if there is medical proof that your life expectancy can be increased, then the value of your policy might decrease.
- Another important factor is the face value of your policy, i.e., the value your beneficiary will receive on account of your death. As per this factor, the more the face value, the more your policy will be valued.
- Cash value means the existing cash in your policy; many buyers tend not to value the existence of more cash value as they wish not to buy cash.
- The final factor is gender. Since, scientifically, women live longer than men, your gender will be considered in valuing your policy.
It’s important to note that on cashing out on your insurance policy, you may not get the exact face value or death benefit; this means that tentatively, you may get 13% to 25% of the value of your policy.
You may become ineligible for Medicaid in the future on selling your life insurance; this is due to the existing assumption that you preferred the life settlement over the viatical settlement on account of your low life expectancy. Therefore, make sure to have a record of your health for future benefits.
It’s important to note that the amount you receive through a settlement is taxable; the percentage varies on applicable factors and the law of your land.
Rescission period is applicable to all settlements: This means that you can return the gained money to the buyer within an allotted time and you can successfully regain your title on the policy. You can contact your life insurance provider or refer to the law of your land to know more.