Yes, you can sell a term life insurance policy, but only under specific conditions and for far less than the death benefit

You can sell an active term life insurance policy to a third party through a process called a life settlement or viatical settlement. The buyer pays you a lump sum — typically 10 to 30 percent of the death benefit — and then becomes the policy owner and beneficiary. They take over premium payments and collect the full death benefit when you die. This is legal and happens regularly, but it is not a straightforward transaction and comes with real drawbacks.

The catch is that term policies are harder to sell than permanent policies like whole life or universal life. Term policies have an expiration date, and buyers know the coverage ends at a fixed age — usually 65, 70, or 80. A policy expiring in five years is nearly worthless to a buyer. Most life settlements happen with permanent policies or term policies with many years remaining.

Key Takeaways

  • Life settlements are legal sales of active insurance policies to third-party buyers who pay you cash and then own the policy.
  • You will receive far less than the death benefit — typically 10 to 30 percent — because the buyer is taking on the risk and cost of future premiums.
  • Term policies are difficult to sell because they expire at a set age, making them unattractive to buyers compared to permanent policies.
  • You lose all control over the policy once sold, including the ability to change beneficiaries or cancel it, and the sale may have tax consequences.
  • Alternatives like surrendering the policy to the insurer or letting it lapse are simpler but leave you with nothing.

How a life settlement actually works

When you decide to sell, you contact a life settlement broker or company that specializes in buying policies. They evaluate your policy based on your age, health, life expectancy, the death benefit amount, and how many years remain on the term. The broker shops your policy to investors and insurance companies that buy these policies as investments.

If a buyer makes an offer, you review the terms. The sale transfers ownership of the policy completely — the buyer becomes the new owner and beneficiary. You receive a one-time payment, and you are no longer responsible for premiums. The buyer now pays all future premiums and collects the death benefit when you die. This can take months to arrange, and you will need to undergo a medical evaluation as part of the process.

Why the payout is so low

The buyer is purchasing the right to collect your death benefit in the future. They have to pay premiums for years or decades before that happens, and they are betting on when you will die. If you live much longer than expected, they lose money. If you die sooner, they profit. The low offer reflects this risk and the time value of money.

A term policy is especially unattractive to buyers because it expires. If your 20-year term has 10 years left and you are 60 years old, the buyer knows the policy ends when you turn 70. They have a narrow window to collect. A permanent policy with no expiration date is far more valuable to an investor, which is why permanent policies sell for higher percentages of the death benefit.

Tax and legal consequences of selling

The money you receive from a life settlement may be taxable income. The IRS treats it differently depending on whether you sold the policy at a gain — meaning you received more than you paid in premiums. If you paid $10,000 in premiums over the years and sold the policy for $15,000, the $5,000 gain is typically taxable as ordinary income. The exact rules are complex and depend on your situation, so you should consult a tax professional before selling.

Once you sell the policy, you have no say in what happens to it. The new owner can keep it in force, let it lapse, or sell it again. You cannot change the beneficiary, cancel it, or take out a loan against it. If you later regret the sale, you cannot undo it. This is a permanent decision.

Why most people do not sell term policies

The combination of low payouts and the complexity of the process means most term policy owners simply let their policies lapse or surrender them to the insurer when they no longer need coverage. If you no longer want the insurance, you can stop paying premiums and the policy ends — you receive nothing, but you also have no further obligation. This is simpler than arranging a sale.

Some people hold onto term policies even after they no longer need them because the premiums are affordable and they want to leave something behind. Others convert their term policy to a permanent policy before it expires, which keeps the coverage in place without a new medical exam. Selling is typically only worth considering if you have a large death benefit, many years of term remaining, and you need cash urgently.

When selling might make sense

A life settlement is most practical if you have a term policy with a high death benefit (usually $500,000 or more), you are in your 60s or older, and you have at least 10 years of coverage remaining. Younger policyholders with short-term policies will find few or no buyers. You also need to be in reasonably good health — a buyer will order a medical exam, and serious health problems can kill the deal or lower the offer further.

If you are facing a major financial hardship and need cash, a life settlement might be an option worth exploring. Contact a life settlement broker to get a sense of what your policy might be worth. Be aware that brokers take a commission, usually 10 to 15 percent of the sale price, which comes out of your payout. Ask about fees upfront before you move forward.

Alternatives to selling

If you need money and own a term policy, you have other options. Some term policies include a conversion rider that lets you convert to a permanent policy without a medical exam — this keeps coverage in place but does not give you cash. If your policy has a cash value (which term policies typically do not), you might be able to borrow against it or surrender it for whatever cash value exists, though this is rare with term.

You can also simply stop paying premiums and let the policy lapse. The coverage ends, and you owe nothing more. This is free and immediate, though you lose any death benefit protection. If you are certain you no longer need life insurance, this is often the simplest path.

Frequently Asked Questions

How much will I get if I sell my term policy?

Most buyers offer 10 to 30 percent of the death benefit, depending on your age, health, how many years of term remain, and the death benefit amount. A $500,000 policy might sell for $50,000 to $150,000. The exact amount varies widely, and you will not know until a broker shops it to buyers. Larger policies and those with many years remaining typically fetch higher percentages.

Can I sell a term policy that is about to expire?

Technically yes, but you will find almost no buyers. A policy expiring in one or two years has almost no value to an investor because they have little time to collect the death benefit. Buyers want policies with at least 10 years remaining. If your term is ending soon, selling is not a realistic option.

Do I have to tell my family I sold my policy?

No, but you should consider the consequences. If your family was counting on the death benefit, they will not receive it when you die — the new owner will. You are not legally required to tell them, but keeping it secret could create serious problems if they expected that money.

What happens if I die before the sale closes?

The sale does not close until ownership officially transfers to the buyer. If you die during the process, your beneficiary receives the full death benefit, not the buyer. Once the sale is complete and the buyer owns the policy, your beneficiary has no claim to it.

Can I sell my term policy if I have a serious health condition?

You can try, but buyers will order a medical exam and may offer much less money or decline to buy altogether. Some specialized brokers work with people in poor health, but the payouts are lower because the buyer expects you to die sooner, which means they collect the benefit faster but have paid less upfront.