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Selling Your Life Insurance


You may have seen the ads for life settlements featuring older adults who want to sell their life insurance policies for cash. You may have wondered how to sell a life insurance policy for cash or how to cash out a life insurance policy in New Jersey. The truth is you can cash out when you sell your life insurance policy. If you are thinking about how to cash in a life insurance policy, your answer will depend on the policy type. For instance, if you have a term life insurance policy, you cannot cash it out before death because it does not have cash value, but if you have a permanent life insurance policy, you may be able to do so.

When you sell your life insurance policy, the buyer will pay a cash payout higher than the policy's cash surrender value but below the total face value. The buyer will pay the premium to keep the policy in force. The buyer also becomes the surviving beneficiary and receives a payout following the policyholder's death.

When Should You Consider Cashing Out Life Insurance?

If your life insurance policy has accumulated cash value, you can cash it out. This can be a convertible term life policy or a permanent life insurance policy. You have to have some cash value in the policy to withdraw it. Unless it has been converted to a permanent insurance policy, term life insurance does not have cash value. Some permanent life insurance policies you can cash out are variable universal life, indexed universal life, whole life, and universal life. The amount of cash value that can accumulate depends on the type of policy and how long it has been in effect. In addition, the interest that you earn on the investments can also affect the cash value. For instance, in universal life insurance, the cash value accumulates as you pay premiums and can grow by earning interest. Unless you have had the policy for many years, the cash value may be less than what you paid in premiums.

How to Sell Life Insurance Policy in New Jersey:

The two main life insurance settlement options in New Jersey include:

Viatical settlements:

These types of settlements are designed for people with life-threatening illnesses or chronic health conditions. Cash payouts for viatical settlements are tax-free which makes it a great way to have financial freedom. To be considered for a viatical settlement, you must provide a brief application that includes all of the necessary details about yourself, such as your medical records and diagnosis to your insurance provider. Once the application is submitted, you will receive a written agreement regarding the amount of money you can expect to receive as payout.

Life settlements:

A life settlement is a type of insurance transaction that involves selling an existing policy to a third party for a cash payment. This is a great example of how to cash in a life insurance policy before death. The seller of a life settlement receives a cash payment from the third party, which is usually less than the policy's death benefit. The buyer becomes the policy's beneficiary and collects the benefits when the insured passes away. You get a lump sum payment in exchange for the policy, and the amount you will receive in the market varies, depending on factors like age, health, and the policy terms. However, it is important to note that these are also taxable income, so they will have to pay taxes.

Many people who choose to sell their policies are older individuals who need money for retirement, which is why it is often referred to as senior settlements. Some other reasons why you may sell your life insurance policy are:

  • You cannot afford to pay premiums, hence you sell your policy instead of letting it lapse. You will have a smaller cash surrender value if you fail to pay premiums. On the other hand, a life settlement may result in higher cash payments from the buyer
  • You do not need the policy again because the reasons you got the policy are no longer relevant e.g., the dependents do not need the policy again
  • You need to cover unexpected expenses, like a family member’s health emergency or funeral

When selling life insurance, the insured's age and health are the most important factors that investors consider. The average age of people who sell policies through these settlements is 75. Life insurance providers prefer to buy policies from individuals with shorter life expectancies, as the lower the life expectancy, the more value they can get. Another important factor that investors consider when buying life insurance is the amount of the policy's death benefit.

Life insurance policy buyers are referred to as life settlement companies. They can collect the benefits from the policies or sell the interests in the policies to investors. Anyone who wants to act as a life settlement provider must obtain a license from the New Jersey Department of Banking and Insurance. In addition, you must ensure you execute a life settlement contract with the life settlement company. A life settlement contract involves a provider and an owner agreeing to settle the terms of a certain insurance policy or certificate in exchange for the owner's assignment, transfer, sale, or provision for the death benefit. At the minimum value, a life settlement contract should not be less than the cash surrender value of life insurance and accelerated death benefits available at the application time. You can use the List of Licensed Viatical-Life Settlement Providers maintained and provided by the New Jersey Department of Banking and Insurance to find authorized life settlement providers.

Pros and Cons of Selling Life Insurance

If you are considering if it is worth cashing out on your life insurance, you should consider its pros and cons:

Pros of selling life insurance

Selling a life insurance policy can assist you in accessing the cash you need for long-term care or medical expenses. It is a more straightforward way of removing your policy, and it cancels the worry of making premium payments. Selling a life insurance policy can also cover your retirement income. It is usually a lump-sum payment, and you can use the cash payout. A life settlement payout is typically higher than the cash surrender value under a policy. Meanwhile, the payout is higher than an accelerated death benefit.

Cons of selling life insurance

Unfortunately, selling a life insurance policy can get complicated and may not provide a great return. It may not be the ideal choice for everyone, especially for young persons in good health. Sometimes, they end up getting paid less than their policy’s worth and the new buyer who will be responsible for paying the premium will get the death benefit when the seller of the life insurance policy dies. In addition, the policyholder may be required to pay taxes on the settlement amount.

Ultimately, how to cash out a life insurance policy will depend on whether you choose to keep it or withdraw all of its cash value. As such, you can consider other alternatives that may be more beneficial for you when considering how to sell life insurance policy for cash, including:

  • Surrendering your policy for its cash value. Surrender charges will be deducted from the cash value.
  • Taking out a loan against its cash value. This type of loan does not require you to pay it back until you die. It allows you to borrow up to the total amount of your policy and does not require you to make any payments until you die. One disadvantage of this type of loan is its high-interest rates, which can reduce the death benefit your beneficiaries receive.
  • Taking advantage of your policy's accelerated death benefit if you have been diagnosed with a terminal illness. This benefit can help you get a portion of the death benefit.
  • Using the cash value or dividends from your permanent life insurance policy to cover your premiums. This is an example of how to cash in a life insurance policy before death, and it can help keep your policy in force.
  • Converting your existing life insurance policy into a hybrid one. You must ensure you are healthy enough to qualify for this policy. However, this may not be an option if you have a chronic illness.

When considering selling your life insurance policy, it is best to consult a New Jersey-licensed life insurance agent. The agent is more knowledgeable about how to cash out life insurance policy options that are most suitable for you based on your needs. Also, the agent is more conversant with information about current laws that may protect you during the process.

How To Sell Life Insurance in New Jersey?

You can sell a permanent or term life insurance policy in New Jersey, although investors usually prefer permanent life insurance because they do not want the insured to outlive the policy's life. However, some life insurance policies cannot be sold, like government-issued and group life insurance.

In New Jersey, licensed brokers handle most life settlements because they are representing the policy's owner. The broker's goal is to get the highest possible price for the policy owner. These licensed brokers also have the option is to work with providers who are licensed buyers. Although, if you plan to sell a life settlement directly to a provider, you might avoid paying a commission. However, you should still get and compare offers from other licensed buyers in New Jersey. You must complete an application to sell a life settlement, and you will need to provide the necessary information about your policy. An underwriter will use this information to assess its value and estimate your life expectancy. You can make offers based on your health and the policy's value.

How to Sell a Life Insurance Policy:

Here are the basic steps you will need to follow when selling your life insurance policy in New Jersey:

  1. Understand the process: This will allow you to make informed decisions and maximize the value of your policy. Aside from the type of policy you have, it is also important to check the applicable regulations in New Jersey. You can easily rely on a New Jersey licensed life insurance agent to guide you through this process.
  2. Hire an independent advisor: You should hire an independent financial advisor to review your life insurance policy's value. The advisor can perform an appraisal to know the worth of your policy. They can help you find the best possible deal by explaining the various life insurance policy features that can add value and recommend life settlement companies that will give you value for your policy.
  3. Do your due diligence: Before you start the process of finding a new broker, it is important that you thoroughly interview several potential candidates. This will allow you to understand their commission structure. Other factors, like their licensing status and willingness to give discounts are also taken into account to ensure you get the best possible deal. One of the most important factors you should pay attention to is the transaction costs. Typically, brokers can charge up to 50% of the policy's gross price.
  4. Get and compare estimates: One of the essential things you should do when planning to sell your policy is to get and compare estimates from multiple potential buyers. Many offers are made in the market and the best one may not be the first one. It is essential to take your time to wait for a good offer.
  5. Gather all relevant documents: You must be prepared to give potential buyers a copy of your policy. Some potential buyers will also want to inspect your medical records to assess their value.

Nonetheless, before you start thinking about selling a life insurance policy, it is important to ask the provider or broker the following questions:

  • Are you licensed in New Jersey? To check if your preferred broker or provider is licensed, you can use NJDOBI's licensee search platform.
  • What fees do I have to pay? Some brokers charge a commission for selling life insurance, and they may also require you to pay for the medical records of your insured.
  • Who am I selling my life insurance policy to? Investment firms heavily dominate the life settlement market. However, there are also groups and individual investors who can purchase policies.
  • Once the policy is sold, what happens to it? Some investors will buy it and then sell it to other investors. You eventually may not know who will ultimately own the policy.
  • How is your privacy protected? Before you start thinking about selling a life insurance policy, it is important to ask the providers and broker how your privacy will be protected. You should also ask who will access your information and whether the state has regulations protecting it.

Before you sell your life insurance policy, it is important that you thoroughly research the multiple buyers available to you. You should also compare quotes and ensure that you understand the terms of the sale.

How To Surrender Life Insurance in New Jersey

If you have an emergency financial need or no longer need your life insurance policy, you should consider surrendering it. However, if you intend on changing your insurance company and have not found a preferred one, you do not need to surrender your life insurance policy. This is because if you surrender your life insurance policy and then try to take out another policy at another time, your increased age may impact the premium you will pay. Your life insurance policy is immediately canceled if you surrender it. Your insurer will send you a check for the life insurance cash surrender value, where applicable. This is the balance in your policy's cash value account minus any surrender fees. Life insurance policies with older cash surrender values tend to have higher balances than those with newer policies. This is because the value of cash accumulates slowly over time. In the first few years, your policy's cash value may not move much, but it will grow significantly over time. Surrender fees are usually high during the policy's early years and will gradually phase out over time. A young policy's low cash value balance and high surrender fees can result in a small or nonexistent life insurance surrender value. On the other hand, an older policy should have a higher balance and lower surrender fees to maximize its cash payout.

How to surrender life insurance policy?

Although some providers in New Jersey may have different procedures for handling the surrender of life insurance policies, these are the typical steps that most people follow when surrendering their life insurance policy:

  1. Contact your insurance agent to let them know that you want to surrender your policy. You can then visit their office to get a surrender form. These can be sent via mail or digitally via email.
  2. Fill out the form and make a copy for your recordkeeping. This is your legal permission to signal the company to surrender your policy.
  3. Then send the form to your insurance company and keep the mail receipt. These documents will prove that you have completed and mailed the form.
  4. Wait for the insurance company to process your request and send a check for your cash surrender value.

When Can You Surrender Your Life Insurance Policy?

Most life insurance policies with cash value have certain rules about when it is possible to surrender. These policies typically have a surrender period and fees. These details are covered below, but the main point is that they must be active for a certain amount of time like ten years or more before they can be surrendered. A policy's cash value can increase significantly if it is active and the premiums are paid. This is because, as long as it is active, it will be worth more. Many policies also require that you hold them for a certain amount of time before they can be surrendered.

  • Surrender periods: Some life insurance policies with an embedded cash value component have a surrender period. This period usually lasts for around ten to fifteen years. Although the goal of the surrender period is to prevent premature surrender, it can still be achieved if the policyholder decides to surrender. However, if the policy is surrendered during this period, it will typically have high fees. The fees will then decrease as the policy's life expectancy ends.
  • In force: An "in force" life insurance policy means that the coverage is still present and the premiums have been paid. A plan goes into effect once initiated, and the first premium is paid. A policy can no longer be in force once it has been canceled, surrendered, or expired.

Longer-term life insurance policies with cash value tend to have higher premiums as the number of payments increases. This can also result in lower surrender fees.

When it comes to surrendering a policy, there are varying outcomes. For instance, in some policies, the buyer must take the cash surrender value of life insurance and then forgo the death benefit. Surrendering a life insurance policy may come as a cancellation or a cash payout. Certain policies, which have an investment or cash value component, will provide payment. On the other hand, term life policies do not have this type of component. Instead, a cash surrender value is a payment the company makes to the holder when they close their account.

  • Term life: Unlike other insurance policies, term life policies do not have an investment component. When you surrender your policy, the company will cancel it, but you will not receive a payment.
  • Whole life: You can surrender whole life policies without fees. This allows the holder to gain the full investment amount minus the fees. During the policy's life, around one-third of the premiums are invested in an investment fund. After the investment, the remaining funds will be returned to the policyholder. The insurance company will typically take around 10% to 30% in fees after the policy is surrendered. Whole life policies are generally placed into low-risk investment accounts with high-interest rates, which can yield a significant return.
  • Universal life: A cash value component is included in universal life insurance policies. When you surrender one of them, you will receive the sum of your investment account minus any fees the insurer collects. These policies are typically placed in market-dependent accounts, which have higher potential gains and are riskier than whole-life insurance policies. Since these accounts are not insured for guaranteed annual returns, your payout amount will not accumulate and be valued at a fixed rate.

One of the most important factors you should consider when it comes to surrendering a life insurance policy is the age of the policy. If it is not old, you may be charged a fee to surrender it. Also, the policy's cash value will be taxable, even if the death benefit is tax-exempt.

Surrendering a life insurance policy is subject to a marginal tax rate. The cash return may be higher if it ends after twenty or more years. However, the provider may charge a fee if it has been in place for less than ten years. Your licensed broker can help you determine the fees and provide you with an estimate of the current state of your policy. When you surrender your policy it is usually influenced by various factors, such as funding a long-dreamed-of vacation or to maintain your current living expenses. It is important to know that when you want to cash out your whole life insurance policy the money paid in return may be subject to taxes at a higher rate. Lets assume the first $10,000 you receive from the policy will not be taxed nevertheless, if the payout exceeds your paid premiums, this amount will be considered ordinary income and will be taxed at your highest tax rate. Also, if the policy's cash value is greater than the policy's investments, the excess will be considered capital gains.

When deciding on how to surrender a life insurance policy, it is advisable to speak to a licensed New Jersey-life insurance agent who can help you understand the various implications of this move.

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