You can sell a life insurance policy to a third party through a process called a viatical settlement or life settlement, depending on your age and health status.

If you own a life insurance policy you no longer need or can no longer afford to pay premiums on, you have the option to sell it for cash. A buyer — typically an investment company or specialized settlement firm — purchases your policy, takes over the premium payments, and becomes the beneficiary. When you die, they collect the death benefit. You receive a lump sum that is usually less than the death benefit but more than the surrender value your insurance company would offer.

This option exists because life insurance policies have real value. The buyer is betting on how long you will live and whether the premiums they pay will be worth less than the death benefit they eventually collect. The amount you receive depends on your age, health, the policy type, and how much death benefit remains.

Key Takeaways

  • A life settlement or viatical settlement converts your policy into immediate cash, typically 10 to 60 percent of the death benefit.
  • Life settlements are available to most policyholders over 65; viatical settlements require a terminal diagnosis or serious illness.
  • You will need medical records, a copy of your policy, and underwriting by the buyer before an offer is made.
  • Selling a policy has tax consequences and may affect Medicaid or other means-tested benefits, so consult a tax professional first.
  • The process takes 30 to 90 days from initial contact to receiving payment.

The difference between life settlements and viatical settlements

A life settlement is the sale of a life insurance policy when you are in reasonably good health. You must typically be at least 65 years old, though some firms accept sellers as young as 55. The policy must have a death benefit of at least $100,000 to $250,000 (the minimum varies by firm). The buyer makes an offer based on your age, health history, and life expectancy.

A viatical settlement is the sale of a policy when you have a terminal illness or serious medical condition expected to shorten your life significantly. Viatical settlements are available at any age if you meet the health criteria. Buyers typically look for diagnoses like advanced cancer, AIDS, or end-stage organ disease. Because life expectancy is shorter, the percentage of the death benefit you receive is usually higher — sometimes 50 to 80 percent — than in a life settlement.

Both are legal transactions in all 50 states, though regulations vary. Some states require the settlement company to be licensed; others do not. Both have tax and benefits implications you should understand before proceeding.

What you need to sell your policy

Before a buyer will make an offer, you must provide documentation. Start with a copy of your actual policy — the document itself, not just the declarations page. You will also need recent medical records, typically from the past 12 months. The buyer's underwriting team will review these to estimate your life expectancy.

You will need to authorize a medical records release so the buyer can obtain records directly from your doctors. You should also have your policy number, the current death benefit amount, and the annual premium readily available. If you have missed payments or the policy is in a grace period, disclose that now — it affects the offer.

Some buyers require a phone interview or in-person medical exam. Others work entirely through submitted documents. The process is not instantaneous; underwriting typically takes 2 to 4 weeks. Once an offer is made and you accept, another 2 to 6 weeks may pass before funds are transferred to your account.

How much money you will receive

The amount depends on several factors the buyer calculates. Your age, gender, and health status determine life expectancy. A 70-year-old in good health might receive 15 to 25 percent of the death benefit. A 75-year-old with heart disease might receive 30 to 50 percent. Someone with a terminal diagnosis might receive 50 to 80 percent. The remaining death benefit goes to the buyer as their return on investment.

The policy type matters too. Term life policies are worth less because they expire at a set age; permanent policies (whole life, universal life) are worth more because they remain in force for life. A policy with $500,000 in death benefit might sell for $50,000 to $150,000 depending on these variables.

You will typically receive multiple offers from different buyers. Compare them carefully — the highest offer is not always the best if it comes with hidden fees or a longer closing timeline. Ask each buyer to itemize all costs they will deduct from the sale proceeds.

Tax consequences of selling a policy

The money you receive from selling a life insurance policy is not automatically tax-free. The IRS taxes the difference between what you receive and what you have paid in premiums over the life of the policy. If you paid $50,000 in premiums and receive $100,000 from the sale, you owe income tax on the $50,000 gain.

Viatical settlements have different tax treatment if you meet specific criteria. If you have a terminal illness (expected to live two years or less) or are chronically ill (unable to perform daily living activities), the proceeds may be tax-free under IRC Section 101(g). You will need medical certification of your condition, and the settlement company should provide guidance on what documentation the IRS requires.

Before you sell, consult a tax professional or CPA. They can calculate your actual tax liability and help you understand whether the net proceeds (after taxes) make the sale worthwhile. This is especially important if the policy was a gift or if you have held it for many years.

Impact on Medicaid and other benefits

If you receive Medicaid, SSI (Supplemental Security Income), or other means-tested benefits, selling a policy will affect your may be able to access. The lump sum you receive counts as income or assets, depending on the program and your state. You may lose benefits temporarily or permanently if the proceeds push you over the asset limit.

Medicaid asset limits vary by state but are often $2,000 for individuals. If you receive a $50,000 settlement, you will exceed that limit immediately. Some states allow a brief period to spend down the excess; others do not. SSI has similar rules and may suspend benefits until your assets fall back below the threshold.

If you are on Medicaid or SSI, contact your caseworker or the program administrator before you sell. Ask whether the settlement will affect your benefits and whether there are ways to structure the transaction to minimize the impact. In some cases, it may be better to surrender the policy to the insurance company or let it lapse rather than trigger a benefits loss.

Finding a buyer and avoiding scams

Life settlement companies are not regulated uniformly across states. Some states license them; others do not. This creates room for fraud. Legitimate buyers are members of the Life Insurance Settlement Association (LISA) or the National Association of Settlement Purchasers (NASP), though membership is not required to operate legally.

Start by contacting your state's insurance commissioner's office to ask whether settlement companies must be licensed in your state and whether any complaints have been filed against firms you are considering. Ask for references from recent sellers — legitimate companies will provide them. Be wary of any firm that guarantees a specific offer before underwriting or that pressures you to decide quickly.

Never pay an upfront fee to a settlement company. Legitimate buyers deduct their fees from the proceeds you receive; they do not ask for money before the sale closes. If a firm asks for payment in advance, it is a scam.

You can also work with a life settlement broker, who shops your policy to multiple buyers on your behalf. Brokers are paid a commission by the buyer, not by you. A good broker can help you compare offers and navigate the process, though not all states regulate brokers the same way.

Alternatives to selling your policy

Selling is not your only option if you no longer want or can afford a policy. You can surrender it to the insurance company and receive the cash surrender value — the amount the company will pay you to cancel the policy. This is usually less than what a settlement buyer would offer, but it is simpler and faster.

If you cannot afford premiums, you may be able to reduce the death benefit instead of surrendering the entire policy. This lowers your premium to a manageable level while keeping some coverage in place. Ask your insurance company whether this option is available.

You can also let the policy lapse by stopping premium payments. After a grace period (usually 30 days), the policy ends and you receive nothing. This is the worst financial outcome but requires no action on your part. If the policy has cash value, the insurance company will use it to pay premiums for a time before the policy lapses.

Frequently Asked Questions

Can I sell a term life policy?

Yes, but term policies are worth less than permanent policies because they expire at a set age. A term policy with 10 years remaining might sell for 5 to 15 percent of the death benefit. If the term is about to expire, the policy may have no value to a buyer.

What happens to my beneficiary when I sell the policy?

The buyer becomes the new beneficiary and receives the death benefit when you die. Your original beneficiary receives nothing from the policy. You can still name a beneficiary for any other assets or insurance you own.

Will selling my policy affect my life insurance rates in the future?

Once you sell a policy, it no longer exists, so there are no future rates. If you want to buy new life insurance later, you will apply as a new customer and be underwritten based on your health at that time. Selling one policy does not affect your ability to buy another.

How long does the entire process take from first contact to receiving money?

Typically 30 to 90 days. Initial contact and quote requests take a few days. Medical underwriting takes 2 to 4 weeks. Once an offer is accepted, closing and fund transfer take another 2 to 6 weeks. Expedited timelines are possible but uncommon.

Can I sell a policy if I still owe money on a loan against it?

Yes, but the loan balance will be deducted from the sale proceeds. If you borrowed $20,000 against the policy and receive a $50,000 offer, you will net $30,000 after the loan is repaid. Disclose any outstanding loans to the buyer upfront.