Yes, you can sell a term life insurance policy, but the process and your options depend on how much time is left on the policy and whether the insurance company allows it
A life settlement is the sale of an active life insurance policy to a third party — usually an investment company — for a lump sum of cash. The buyer takes over the premium payments and becomes the beneficiary, collecting the death benefit when you pass away. This is legal and happens regularly, but it only works for policies with significant time remaining and a substantial death benefit. Most term policies sold this way have at least 10 years left on the term.
The amount you receive is less than the death benefit but typically more than the cash surrender value your insurance company would offer if you simply cancelled the policy. How much more depends on your age, health, how long the policy lasts, and current interest rates. There is no single market price — different buyers make different offers.
Key Takeaways
- A life settlement means selling your policy to an investment company for cash, and the buyer takes over all premium payments and becomes the beneficiary.
- Life settlements work best for policies with 10 or more years remaining and death benefits of $100,000 or higher, though minimums vary by buyer.
- You will receive less than the death benefit but usually more than the cash surrender value, and the exact amount depends on your age, health, and policy length.
- The sale is taxable income, and you may owe capital gains tax on the difference between what you receive and what you paid in premiums.
- Not all insurance companies allow life settlements, and some require their permission before you can sell.
Who buys term life insurance policies
Life settlement companies are investment firms that buy policies from people who no longer need or want them. They profit by collecting the death benefit years later. Some specialize in policies from older adults or people with health conditions; others buy from anyone willing to sell.
Viatical settlement companies are a related but narrower category — they buy policies specifically from people with terminal or serious illnesses and expect to collect the death benefit within a few years. The prices are higher because the wait is shorter.
Brokers act as middlemen, connecting you with multiple buyers and negotiating on your behalf. Using a broker increases your chances of getting competing offers, though brokers take a commission (usually 10 to 15 percent of the sale price).
How much you can expect to receive
There is no standard formula. A policy with a $500,000 death benefit and 15 years remaining might sell for $100,000 to $200,000, but the actual offer depends on the buyer's assessment of your life expectancy, current interest rates, and their own profit margin. Older policyholders and those with health conditions typically receive higher percentages of the death benefit because the buyer expects to collect sooner.
Your insurance company's cash surrender value — what they would pay if you cancelled — is usually much lower, often just a fraction of premiums paid. A life settlement is typically worth more, which is why it can make sense as an alternative to cancellation. However, if your policy is still early in the term and you are in good health, offers may be modest.
To get an offer, you will need to provide your policy documents, answer health questions, and sometimes undergo a medical exam. The buyer uses this information to estimate your life expectancy and calculate what they are willing to pay.
Tax consequences of selling your policy
The proceeds from a life settlement are considered taxable income. You will owe federal income tax on the amount you receive, though the exact calculation depends on how much you paid in premiums over the life of the policy.
If you received the sale proceeds and the death benefit exceeds what you paid in premiums, you may also owe capital gains tax on that difference. The tax treatment is complex and varies based on your individual situation. Consult a tax professional before selling to understand your specific liability.
Some states tax life settlements differently, and the rules around what counts as income versus capital gains can shift. A tax advisor familiar with your state's rules is essential before you commit to a sale.
Restrictions and requirements from insurance companies
Not all insurance companies permit life settlements. Some policies include language that prohibits or restricts the sale. Check your policy documents or call your insurance company to confirm whether a life settlement is allowed.
Even if sales are permitted, your insurance company may require notification or consent before the transfer happens. Some insurers have a right to match any offer you receive — meaning they can buy the policy back at the same price rather than let you sell to a third party.
Your policy must be in force (premiums paid and current) for a sale to proceed. If you have let premiums lapse, the policy has no value to a buyer.
When a life settlement makes sense
A life settlement is most useful if you no longer need the death benefit but cancelling the policy would leave you with almost nothing. Common scenarios include: you bought term insurance to cover a mortgage or children's education, and that obligation is now gone; your financial situation has changed and you cannot afford the premiums; or you have other assets and no longer need the insurance protection.
It makes less sense if you still need the coverage, if the policy has only a few years left, or if the death benefit is small (most buyers set minimums around $100,000). Cancelling and redirecting the premium savings to savings or investments may be a better choice in those cases.
If you are considering a sale primarily because premiums are rising, remember that term policies have fixed premiums for their term — they do not increase. If your premium is rising, you may be in a renewal period where the rate jumped, which is a different problem than the policy itself becoming unaffordable.
Steps to explore selling your policy
Start by reviewing your policy documents to confirm that life settlements are permitted and to gather the policy number, death benefit amount, and remaining term. Call your insurance company if the language is unclear.
Contact a life settlement broker or company directly. Reputable firms are members of the Life Insurance Settlement Association (LISA) or similar professional organizations. Provide your policy information and answer their questions about your health and age.
Request offers from multiple buyers or use a broker to solicit competing bids. Compare the amounts offered and any conditions attached. Ask whether the buyer will pay your outstanding premiums during the underwriting period or whether you remain responsible.
If you receive an offer you want to accept, the buyer will handle the paperwork to transfer ownership of the policy. You will sign documents assigning your rights to the new owner, and the insurance company will process the transfer. Once complete, you receive your payment and have no further obligations.
Frequently Asked Questions
What happens to my life insurance after I sell it?
The new owner becomes the policyholder and beneficiary. They pay all future premiums and collect the full death benefit when you pass away. You have no further connection to the policy and receive no additional payments.
Can I sell a term policy that is about to expire?
Technically yes, but buyers will not offer much for a policy with only a year or two remaining. The shorter the remaining term, the lower the offer. If your policy is expiring soon, cancellation or conversion to a permanent policy may be more practical.
Do I need a medical exam to sell my policy?
Most buyers require a medical exam or at minimum a detailed health questionnaire. Some use non-invasive methods like reviewing medical records; others conduct in-person exams. The buyer uses this to assess your life expectancy and calculate their offer.
What if my insurance company denies the sale?
If your policy prohibits life settlements or your company refuses consent, you cannot sell to a third party. Your only options are to keep paying premiums, cancel the policy, or explore whether conversion to a permanent policy is available under your contract.
Will selling my policy affect my beneficiaries?
Yes. Once you sell, your named beneficiaries have no claim to the death benefit — the new owner collects it. If protecting your family is still important, you would need to purchase new coverage before selling the old policy.