You can sell a life insurance policy to a third party for immediate cash, but the amount you receive will be less than the death benefit

Selling a life insurance policy is called a life settlement or viatical settlement (if you have a terminal illness). A licensed buyer purchases your policy, takes over the premium payments, and collects the death benefit when you pass away. You receive a lump sum now—typically 10 to 60 percent of the death benefit, depending on your age, health, and policy type.

This is different from surrendering the policy to your insurance company, which usually pays out only the cash surrender value—often much less than what a third-party buyer will offer. A life settlement broker can shop your policy to multiple buyers and negotiate on your behalf.

Key Takeaways

  • A life settlement pays you a percentage of your death benefit now, while a surrender to your insurer typically pays less and ends the policy immediately.
  • You must be at least 65 years old, have a policy worth $100,000 or more, and own it for at least two years to sell it in most states.
  • A life settlement broker represents you, shops your policy to buyers, and negotiates the price—you do not contact buyers directly.
  • The sale is taxable as income on the amount above what you have paid in premiums, and it may affect your Medicaid or other benefits.
  • The entire process typically takes two to four months from initial contact to receiving your payment.

Who can buy your policy and how the sale works

Life settlement companies, investment firms, and wealthy individuals purchase policies from people who no longer need or can afford them. The buyer becomes the new policyholder, pays all future premiums, and receives the full death benefit when you die. You have no further obligations or involvement once the sale closes.

The buyer's offer depends on several factors: your age (older is better for the buyer), your current health, the policy's death benefit amount, and current interest rates. A 75-year-old with a $500,000 policy might receive 40 to 50 percent of the benefit; a 65-year-old with the same policy might receive only 15 to 25 percent. The broker will order a medical underwriting report, which costs nothing to you but helps buyers price their offers.

Basic requirements to sell your policy

You must meet several conditions before a broker will take your case. Most require you to be at least 65 years old, though some work with people as young as 60 if health conditions are present. Your policy must have a death benefit of at least $100,000 (some brokers require $250,000 or more). You must have owned the policy for at least two years—this is a legal requirement in most states to prevent fraud.

Your policy type matters. Term life policies are harder to sell because they expire at a set age and have no cash value. Whole life, universal life, and variable universal life policies are easier to sell because they have permanent death benefits. If you have a term policy, you may be able to convert it to permanent coverage first, though this requires underwriting and may take weeks.

How to find a broker and get offers

A life settlement broker is licensed in your state and acts as your agent—they do not work for the buyers. The broker pulls together your policy documents, medical records, and financial information, then shops your policy to multiple settlement companies. This competition typically results in a higher offer than you would receive from a single buyer.

To start, search for "life settlement broker" plus your state name, or ask your insurance agent for a referral. The National Association of Life Settlements (NALS) maintains a directory of licensed brokers. When you contact a broker, they will ask basic questions about your age, health, policy type, and death benefit. This initial conversation is free and carries no obligation. If they think your policy is sellable, they will explain their fees (usually 10 to 15 percent of the sale proceeds) and next steps.

Once you sign a representation agreement, the broker orders medical records and requests your policy illustration from your insurance company. This takes one to three weeks. Buyers then submit offers, which the broker presents to you. You can accept, reject, or counter any offer. Negotiation typically takes two to four weeks.

What you will receive and what it costs you

The amount you receive depends entirely on buyer competition and your health profile. There is no formula or standard percentage. A broker cannot may provide a specific amount before offers come in. Once you accept an offer, the buyer's legal team prepares a purchase agreement, and you sign it in front of a notary. The buyer then pays the broker, who deducts their fee and sends you the remainder—usually within 30 to 60 days after signing.

The sale itself has tax consequences. The IRS treats the proceeds as ordinary income on the amount above your cost basis—the total premiums you have paid into the policy over its life. If you paid $80,000 in premiums and receive $200,000 from the sale, you owe income tax on $120,000. Your broker or the buyer's attorney should provide a 1099-B form for tax filing. Consult a tax professional before accepting an offer if you are unsure how it will affect your tax bracket.

A life settlement may also affect your may be able to access for Medicaid or other means-tested benefits, since the lump sum counts as income and assets. If you receive Medicaid, contact your state program before selling to understand the impact.

Alternatives to selling your policy

Before pursuing a life settlement, consider other options. If you need cash and can no longer afford premiums, you can surrender the policy to your insurance company and receive the cash surrender value. This is simpler and faster than a settlement but typically pays less. You can also take a policy loan against the cash value if your policy has one—you borrow against your own money and repay it, or the loan is deducted from the death benefit when you die.

If you want to keep the death benefit but lower your premiums, ask your insurer about reducing the death benefit or converting to a paid-up policy, which stops requiring premiums but reduces the benefit. These options keep the policy in force and avoid the tax hit of a sale.

If you no longer need the death benefit and want to stop paying premiums, surrendering or settling are your main paths. A settlement pays more but takes longer and has tax consequences. A surrender is faster and simpler but pays less.

Red flags and how to protect yourself

Life settlement is a legitimate market, but scams exist. Never pay an upfront fee to a broker before they have shopped your policy to buyers—legitimate brokers take their fee from the sale proceeds only. Do not work with anyone who guarantees a specific offer amount or promises to "unlock hidden value" in your policy. Offers vary based on real market conditions, and no one can predict them in advance.

Verify that any broker you contact is licensed in your state. Most states regulate life settlements through the Department of Insurance. Ask for references from past clients and check the National Association of Life Settlements website for complaint history. Read the purchase agreement carefully before signing—have an attorney review it if you are unsure about any terms. The buyer will pay for your legal review, so this costs you nothing.

Be cautious of pressure to sell quickly. Legitimate brokers will give you time to think and to consult advisors. If someone pushes you to sign immediately or claims the offer expires in days, walk away.

Frequently Asked Questions

Will selling my policy affect my life insurance coverage?

Yes—once the sale closes, you no longer own the policy and have no death benefit. The new owner holds the policy and will receive the death benefit when you die. You cannot buy it back or reinstate it. Make sure you do not need the death benefit for your family before you sell.

Can I sell a term life policy?

Term policies are difficult to sell because they expire at a set age and have no cash value. Some brokers will not take them. If you want to sell a term policy, you may be able to convert it to permanent coverage first, though this requires medical underwriting and takes additional time.

How long does the entire process take?

From your first contact with a broker to receiving payment typically takes two to four months. Medical underwriting takes one to three weeks, buyer offers come in over two to four weeks, and closing and payment take another two to four weeks. Delays can occur if medical records are slow to arrive or if you negotiate offers.

What happens if I die before the sale closes?

Your beneficiary receives the full death benefit. The sale does not go through. This is why the buyer requires a medical underwriting report—they are assessing the risk that you will die before they own the policy.

Do I need a lawyer to sell my policy?

You do not need one, but having an attorney review the purchase agreement is wise, especially if the amount is large. The buyer typically pays for your legal review as part of the transaction cost, so it does not come out of your proceeds.