Yes, you can sell your life insurance policy, but the process and your options depend on the type of policy you own and your age and health

If you own a permanent life insurance policy — whole life, universal life, or variable universal life — you can sell it to a third party in a transaction called a life settlement. The buyer pays you a lump sum, takes over the premium payments, and collects the death benefit when you pass away. Term life insurance policies can sometimes be sold, but the market for them is much smaller because they expire after a set number of years.

The amount you receive depends on your age, health status, the policy's death benefit, and how much is left to pay in premiums. Younger, healthier policyholders typically receive less because the buyer will wait longer to collect. Older policyholders or those with serious health conditions may receive 50 to 80 percent of the death benefit, though this varies widely.

Before you sell, understand that you lose all ownership rights to the policy. The new owner controls it completely, and your beneficiaries will receive nothing when you die — only the buyer will. This is a permanent decision.

Key Takeaways

  • Permanent life insurance policies (whole life, universal life) can be sold to a third party through a life settlement, but term policies rarely have a market.
  • The cash you receive is typically 50 to 80 percent of the death benefit for older or less healthy policyholders, though amounts vary based on your specific situation.
  • Once you sell, you have no further claim to the policy — the buyer owns it completely and collects the death benefit when you die.
  • You may owe income tax on the difference between what you receive and what you paid in premiums over the life of the policy.
  • A life settlement broker can connect you with buyers and handle negotiations, though they take a commission from the sale price.

When selling a policy makes sense

Most people sell a life insurance policy because they no longer need the death benefit. Common reasons include: you have paid off major debts, your children are grown and financially independent, you have built enough savings that your family no longer depends on the insurance payout, or you can no longer afford the premiums and want to get something back rather than let the policy lapse.

Selling can also make sense if you are facing a serious illness or have a shortened life expectancy. In those cases, a buyer may pay more because they expect to collect the death benefit sooner. Some people use life settlements to fund long-term care or medical expenses.

However, if you still have dependents who rely on your income, or if you have outstanding debts that would fall to your family, keeping the policy is usually the better choice. Cancelling or selling removes that financial protection.

How much you can expect to receive

There is no fixed formula for life settlement payouts. A broker will typically request your medical records, recent test results, and details about your policy — the death benefit amount, annual premiums, and how long you have owned it. They then shop your policy to multiple buyers and negotiate on your behalf.

Factors that increase your payout: you are over 65, you have a serious health diagnosis, the death benefit is large (typically $250,000 or more), and you have many years of premiums remaining. Factors that decrease it: you are young and healthy, the death benefit is small, or the policy is close to maturity.

You will also pay the broker's commission, which typically ranges from 10 to 20 percent of the sale price. Some brokers charge a flat fee instead. Always ask about fees upfront and get multiple broker quotes before committing.

The tax consequences of selling

The IRS treats life settlement proceeds as income. You will owe ordinary income tax on the amount you receive above what you paid in premiums over the life of the policy. For example, if you paid $50,000 in premiums and receive $100,000 from the sale, you owe tax on the $50,000 gain.

There is an exception called the life insurance tax exemption: if you sell the policy to someone who has an insurable interest in you — typically a family member, business partner, or someone who depends on your income — the tax treatment may be different. Consult a tax professional before selling to understand your specific liability.

The buyer will report the transaction to the IRS, and you will receive a Form 1099-B or similar document. Keep records of all premiums you paid, as you will need them to calculate your taxable gain.

Working with a life settlement broker

You do not have to use a broker to sell your policy, but most people do because finding a buyer on your own is difficult. A broker has relationships with multiple settlement companies and can shop your policy to get the best price.

To find a broker, search for "life settlement broker" in your state — they are regulated by state insurance departments. Check that the broker is licensed and ask for references. Some brokers specialize in certain types of policies or health conditions, so it may be worth calling a few to see who is interested in your situation.

The broker will handle the medical underwriting, negotiations, and paperwork. The process typically takes 60 to 90 days from initial contact to receiving your money. During that time, you remain responsible for paying premiums unless the buyer agrees to advance them.

Alternatives to selling your policy

If you need cash but are not ready to give up the policy entirely, you have other options. Most permanent policies have a cash surrender value — money you can withdraw or borrow against. You can surrender the policy and receive this amount immediately, though it is usually less than a life settlement payout. You can also take a loan against the cash value, which does not require giving up the policy.

If you cannot afford premiums, you may be able to reduce the death benefit to lower your payments, or convert a term policy to a permanent one with lower premiums. Some policies allow you to stop paying premiums and let the cash value cover them for a period of time.

If you simply want to cancel the policy without selling it, you can do that at any time by contacting your insurance company. You will receive the cash surrender value if the policy has one. There is no tax on the surrender of a life insurance policy unless you receive more than you paid in premiums.

What happens after you sell

Once the sale closes, the new owner becomes the policyholder. They pay all future premiums and make any changes to the policy. You have no say in what happens to it. The new owner can keep it until your death, sell it again to another buyer, or let it lapse if they choose.

Your beneficiaries will not receive the death benefit — the buyer will. This is why selling a policy is a major decision that affects your family's financial plan. If you have dependents, discuss this with them before proceeding.

You will receive a Form 1099-B from the buyer reporting the sale price, which you will use to file your taxes. Keep all documentation from the sale, including the broker agreement, the settlement agreement, and any correspondence about the transaction.

Frequently Asked Questions

Can I sell a term life insurance policy?

Technically yes, but there is almost no market for term policies because they expire after a set period. A buyer would only collect the death benefit if you die before the term ends, which is a short window. Some brokers will attempt to sell a term policy if the death benefit is very large and you are older, but expect a much lower payout than with a permanent policy.

What if I have a policy with a loan against it?

The outstanding loan balance will be deducted from your sale proceeds. For example, if you receive $100,000 but have a $20,000 policy loan, you net $80,000. The buyer takes over the policy with the loan still attached, and they are responsible for repaying it from the death benefit.

Can I change my mind after selling?

No. Once the sale closes and the new owner takes control, you cannot reverse it. The policy belongs to them. This is why it is important to be certain before you sign the settlement agreement.

Do I have to tell my insurance company I am selling?

Yes. The buyer will need your insurance company's permission to take over the policy, and the company will verify the policy details and your ownership. You cannot sell a policy without the insurer's knowledge.

What if I am denied a life settlement because of my health?

If brokers determine there is no market for your policy, you can still surrender it to your insurance company for its cash surrender value. You can also explore whether you may have access to for a viatical settlement, which is similar to a life settlement but designed for people with terminal or serious illnesses and may have different tax rules.