Guide to Selling Your Life Insurance Policy With a Terminal Illness

December 8, 2023 | By Adam Lippman

Guide to Selling Your Life Insurance Policy With a Terminal Illness

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Your life insurance policy is so much more than a financial tool to support loved ones after your passing. It also offers security during challenging times ahead and a means to gain capital when you need it most. While it is a good idea to consider multiple offers and look into alternative options, it is also imperative that you fully understand the process of how to sell your life insurance with a terminal illness.

If you want to sell your life insurance policy, consult with financial and legal professionals who can offer guidance and support. However, it is still important that you understand the process and options available to you. We have put together a comprehensive guide to help you understand your Life Settlement, good reasons to sell and how you can sell a life insurance policy with poor health in the simplest way possible.


Reasons to Sell Your Life Insurance Policy

Reasons to Sell Your Life Insurance Policy

Anyone who holds a life insurance policy is eligible to sell through a Viatical Settlement if they have a terminal illness with a life expectancy of less than two years. Reasons to sell your life insurance policy with a terminal illness include:

  • Finances to cover expenses:¬†If you cannot work anymore, the funds from selling your life insurance policy can help you cover medical expenses and maintain your quality of life.
  • Peace of mind:¬†With a lump sum that covers your expenses, you have control and flexibility over your finances without worrying that your expenses may become burdensome to loved ones.
  • Familial circumstances:¬†If your beneficiaries do not need the benefit or the pros outweigh the cons of selling your life insurance policy, you have a good reason to consider selling.

What You Can Expect to Get for Your Life Insurance Policy

Several factors influence your cash payout from selling your life insurance policy¬†through a Viatical Settlement, including your circumstances, type of policy, and age.¬†On average, you can¬†get up to 70% of your policy’s value¬†back. This is why it is crucial to get and compare multiple offers from Viatical Settlement providers.¬†Policies with higher end-of-life benefits tend to get higher sale prices. Those with lower premiums offer a decent return on investment, making them even more appealing to buyers.¬†It is worth noting that the IRS does not see capital gained from a Viatical Settlement as income,¬†so you likely won’t pay taxes on the lump sum.¬†

On average, you can get up to 70% of your policy's value back.

Alternative Options

If you are uncomfortable with the idea of selling your life insurance policy or are ineligible, you can look into these options:

  • Borrow against the policy’s cash value:¬†You must repay this option with additional interest. It is often only viable if you have a permanent life insurance policy.
  • Reduce your coverage:¬†Speak to your broker about reducing your premiums if they become burdensome. Some options could include reducing the policy death benefit, which will still provide you with some coverage.
  • Increasing your death benefit:¬†Conversely, you might find the premiums more worthwhile if you increase the benefit the policy pays out.
  • Accelerating your term:¬†If your policy allows this, you can claim your life insurance money before the end of the term.
  • 1035 exchange:¬†You may be able to swap your current policy for another if you find a better alternative.
  • A personal loan:¬†Sometimes, a personal loan from your bank may be a better solution.
  • Policy surrender:¬†If you have a whole life policy, you receive your policy’s cash surrender value when you terminate the policy.
  • Government programs:¬†You could also look into¬†government financial support programs.

Contact local support groups, non-profit organizations, and charities for guidance about these options or support regarding your finances in this stage of life.


How to Sell Your Life Insurance With Poor Health

How to Sell Your Life Insurance With Poor Health

The process of a Life Settlement can be complex without the right knowledge. Having an independent broker by your side is advisable to help you navigate the nuances involved. Investors prefer whole life policies with flexible premiums or high-value policies with an insurance company that boasts a financial strength rating of “A” or higher. The process is generally as follows:

  • Establish eligibility:¬†Understand your policy, its coverage, and your cash value in the account.
  • Gather your paperwork:¬†Potential buyers will want to assess your policy value by requesting your most recent medical history.
  • Get an appraisal:¬†It’s best to hire an independent advisor to assess your policy’s value and determine which features may increase its worth.
  • Partner with a settlement company:¬†Your partner will provide various offers to ensure you get the most for your policy.
  • Ownership transfer:¬†When you accept an offer, the settlement provider sends you documents to sign before they notify your insurance provider. Once the ownership change is official, you receive your settlement funds. It often takes a few months from start to finish unless you find a suitable offer quickly.¬†

In the closing process, when you sell your life insurance policy, you will fill out a life insurance application for the buyer to peruse. They will make you an offer you can accept or decline, starting the process all over again. If you accept the offer, the buyer pays the agreed amount and takes ownership of the policy.

Sell Your Life Insurance Policy With a Viatical Settlement

These financial agreements allow insurance policy owners with terminal diagnoses to sell their policy to a third-party organization regardless of age. This gives you a portion of your benefit when needed, providing some financial relief to cover medical expenses, improve your day-to-day life, and settle debts.

  • Eligibility and requirements:¬†Qualifying for a¬†Viatical Settlement¬†requires a terminal condition and a life insurance policy that is eligible for a¬†Viatical Settlement.
  • Find a reputable¬†Viatical Settlement¬†provider:¬†It is essential to work with experienced professionals who can navigate the complexities of¬†Viatical Settlements, providing you with fair offers.
  • Process of applying:¬†The application process involves submitting your medical records and policy information, which the settlement company will use to assess your policy’s value.
  • Offer evaluation:¬†The¬†Viatical Settlement¬†provider will present offers from buyers representing a lump sum in exchange for your policy.

Legal and Financial Considerations

An integral part of selling your life insurance with a terminal diagnosis is carefully weighing the legal and financial aspects. Get advice from financial advisors, your broker, or tax experts to ensure you have enough information and that the outcome of the sale aligns with your immediate or longer-term goals, which include staying compliant with laws and regulations.

Legal Considerations

With a¬†Viatical Settlement, you must provide medical documents supporting your terminal diagnosis and a prognosis or life expectancy. Review your policy terms and conditions to verify there are no restrictions in terms of sales and settlements. Next, research your state laws. The process may be governed by local laws to protect your interests and the settlement provider’s. While you are more likely to receive tax exemptions with a¬†Viatical Settlement¬†than a Life Settlement, contact a tax advisor to ensure you understand potential tax implications based on your situation.

Financial Considerations

When you have a longer life expectancy, the settlement offer will likely be lower, so it is equally important to consider whether the settlement value will cater to your needs. Weigh the offer amount against the cost of your care and other expenses like mortgages, loans, or medical bills you need to meet.

Also, think about the potential impact this will have on your beneficiaries, as the death benefit goes to the buyer after you take a settlement. This change might affect your loved ones’ financial security.

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Managing Your Proceeds

The proceeds you receive from selling your life insurance policy are unrestricted to use at your discretion. Managing the funds from this sale is vital to ensuring that you are financially secure during a challenging time. Some advice you can use in handling these proceeds includes:

  • Create a budget:¬†A detailed budget with your known expenses, like medical bills, everyday living costs, and possible home care, will help you manage your new income better.
  • Get an additional account:¬†A dedicated bank account for the proceeds from your life policy settlement or a portion thereof can help you organize your expenses better by ensuring your funds are allocated for their intended use.
  • Medical care:¬†Set aside a substantial portion to cover your medical expenses, treatments, and consultations.
  • Debt management:¬†Allocate funds to settling your debts, prioritizing high-interest debts, and paying your mortgage payments or utility bills to take some pressure off yourself.
  • Quality of life:¬†Remember to budget for a few activities or experiences that will bring you joy.

While it is essential to manage your proceeds responsibly, remember to prioritize your comfort, financial security, and legal compliance. Reach out to a financial advisor to help you plan around these factors. They can also help you set up some investments and optimize your tax benefits. Now is also a good time to review your estate plans and ensure your assets will be distributed to your beneficiaries when the time comes.

Real Stories of Financial Relief

Individuals and their families face many emotional and financial challenges when dealing with a terminal diagnosis. When you decide to sell your life insurance policy, you want peace of mind, knowing that you will get a fair return on investment that will keep you comfortable as long as you need it. These real-life success stories will provide more reassurance about the path forward: 

  • Nursing home expenses:¬†Despite a small policy and an insurance carrier with a “B” rating, an 88-year-old received fair compensation for his life insurance policy,¬†taking the strain off of paying for nursing home expenses¬†out-of-pocket.
  • Change in circumstances:¬†Sometimes life takes a turn for the better, and you no longer need a substantial policy. Despite a longer life expectancy, one client¬†sold a term policy of over $1.5 million¬†within a few weeks.
  • Using a professional broker:¬†With several low offers, one client decided to use an experienced broker to help source a just offer and¬†received 10 times more¬†than their original offer, going from $35,000 to $240,000.

Life Insurance Settlement Association (LISA) Approved

Working with a reputable Life Settlement organization is essential for a fair and seamless transaction. Knowledge is your greatest ally as you peruse the options of selling your life insurance policy. Your choices can offer invaluable comfort and peace to you and your family. When you partner with a settlement professional, you can confidently manage your proceeds to address your immediate expenses, improve your quality of life and settle outstanding debts.

Settlement Benefits Association acts in your best interests. We take our responsibility as fiduciaries seriously and are ready to help you maximize your settlement funds so you can focus on what really matters during this profound time. Contact us for more information, and a specialist will reach out to work with you on your settlement process.

improve your day-to-day life, and settle debts


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