Can I sell a client’s life insurance policy?
Unlocking the Possibilities: can i sell my client's life insurance? Explore the regulations, considerations, and ethical aspects involved in selling a client's life insurance policy. Learn about the potential benefits, risks, and alternatives, and gain insights into the process and eligibility requirements. Understand the impact on the policyholder, beneficiaries, and overall financial planning.
Read moreFree Life Insurance Comparison
Compare Quotes From Top Companies and Save
Secured with SHA-256 Encryption
Zach Fagiano
Licensed Insurance Broker
Zach Fagiano has been in the insurance industry for over 10 years, specializing in property and casualty and risk management consulting. He started out specializing in small businesses and moved up to large commercial real estate risks. During that time, he acquired property & casualty, life & health, and surplus lines brokers licenses. He’s now the Senior Vice President overseeing globa...
Licensed Insurance Broker
UPDATED: Sep 14, 2024
It’s all about you. We want to help you make the right coverage choices.
Advertiser Disclosure: We strive to help you make confident insurance decisions. Comparison shopping should be easy. We are not affiliated with any one insurance company and cannot guarantee quotes from any single insurance company.
Our insurance industry partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different insurance companies please enter your ZIP code above to use the free quote tool. The more quotes you compare, the more chances to save.
Editorial Guidelines: We are a free online resource for anyone interested in learning more about insurance. Our goal is to be an objective, third-party resource for everything insurance related. We update our site regularly, and all content is reviewed by insurance experts.
UPDATED: Sep 14, 2024
It’s all about you. We want to help you make the right coverage choices.
Advertiser Disclosure: We strive to help you make confident insurance decisions. Comparison shopping should be easy. We are not affiliated with any one insurance company and cannot guarantee quotes from any single insurance company.
Our insurance industry partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different insurance companies please enter your ZIP code above to use the free quote tool. The more quotes you compare, the more chances to save.
On This Page
In the world of life insurance, one question often arises: “Can I sell my client’s life insurance?” This article delves into this intriguing topic, exploring the legal and ethical considerations surrounding the potential sale of a client’s life insurance policy.
Gain insights into the financial implications and explore alternatives to selling, ensuring that you make informed decisions that align with your client’s best interests and long-term financial goals. To safeguard your client’s financial future, enter your zip code below and compare rates from the best insurance providers in your area.
Life settlements explained
A life settlement is the sale of an existing insurance policy to a third-party company or investor in return for cash. This third party pays you a sum and takes over your monthly premiums, then ultimately receives the policy benefit when you pass away.
The amount you’ll receive can be anywhere between 10% and 50% of the policy’s face value and averages roughly 22%.
More importantly, the cash you’ll receive from a life settlement is always more than you’d get if you were to surrender the policy and get the available cash value. In fact, there are instances where the policyholder receives 26 times more cash through a life settlement than what his insurer would’ve paid him if he had surrendered the policy instead.
The cash value of a life settlement is based on a few different factors, including your:
- Age
- Health
- Premium
- Type of insurance
- Policy size
Compare The Best Insurance Quotes In The Country
Compare quotes from the top insurance companies and save!
Secured with SHA-256 Encryption
Types of life settlements
Depending on your client’s needs, you can recommend one of three options: a traditional life settlement, a viatical settlement, or a retained death benefit life settlement. Here’s a quick summary of each.
Traditional life settlement
This is the basic form of life settlement that we discussed in the previous section. If your client is over 70 years old, in reasonably good health and no longer needs the policy, a traditional life settlement is a good choice.
Viatical settlement
This life settlement option is designed specifically for clients who are terminally ill and don’t have an accelerated death benefit rider on their policy. With a viatical settlement, your client can get the cash they need to pay current medical bills and future treatment.
Retained death benefit life settlement
If your client no longer needs or can’t afford their full policy but still needs some coverage, consider recommending this option.
As the name suggests, your client would keep a portion of their policy benefit after the third-party company or investors takes over. Depending on the situation, they may do this instead of receiving cash or in addition to a payment. If they do receive a payment, it will be much less than if they were to go with a traditional life or viatical settlement.
Consult with your client to determine the right course of action for them and their loved ones.
Types of life insurance you can sell
Life settlements are common with permanent life insurance policies such as universal life because they already have built-up cash value. Whole life policies are also sold, however much more rarely — over 90% of life settlements are for universal life insurance policies. But it’s also possible to sell a term life insurance policy in a life settlement if it’s convertible to permanent insurance.
That’s especially helpful because term policyholders typically receive nothing in return when they cancel their policies.
Most life insurance companies offer a conversion rider on their term policies, but some charge extra for the benefit. If your client’s policy has a conversion rider but no accelerated death benefit, consider recommending a life settlement instead of canceling.
If they qualify, they only stand to gain from getting rid of the policy.
How to determine if your client is eligible
While technically anyone can try to sell their life insurance policy, your client will only get a life settlement if the investment is worth it to the buyer. Here’s what to consider when talking with your client about a life settlement:
Age and health: The older you are, the better the chances of finding a buyer. For example, if your client is 30 years old and in relatively good health, the potential buyer would likely need to make payments on the policy for decades to come before getting any benefit from it. As a result, your client will have a hard time selling their policy.
If, however, they’re 65 or older and have a major medical condition, they’ll have an easier chance finding a buyer.
Policy type: Whole, universal, and term life insurance with a conversion rider are all eligible for life settlements. But if your client has a term policy, they’ll need to convert it to a universal life insurance beforehand.
Policy size: Investors and life settlement companies are looking to get a good return on their investment, so it’s recommended to have a policy with at least a $100,000 face value. If you’re eligible for a viatical settlement, you may qualify with a policy with a face value of $50,000 or higher.
Compare The Best Insurance Quotes In The Country
Compare quotes from the top insurance companies and save!
Secured with SHA-256 Encryption
How to determine if a life settlement is right for your client
Even if your client is eligible for a life settlement, it may not be in their best interest to sell their life insurance policy. Here are a few things to consider as you consult with your client.
Can they afford the policy?
Many people let a life insurance policy lapse because they can no longer afford the premiums. This can especially happen with universal life policies because premiums aren’t necessarily set for life. For example, a handful of insurers hiked their universal life premiums as high as 72.4% in 2015.
If your client can no longer afford their policy because of premium increases or other budget-related restrictions, a life settlement may be a no-brainer. If they can afford the policy, however, they may have more options.
Do they need the coverage?
As your clients get older and accumulate other assets, their need for life insurance coverage typically dwindles. While there are some exceptions to that rule, especially with large estates, your client may no longer want to pay for a benefit they don’t need anymore.
One solution to this problem, if the client wants to keep some coverage and the insurer allows it, is to reduce the face value of their policy.
But reducing the client’s policy benefit could have a negative impact on their cash value, and they may get more value out of selling the policy instead.
Do they need the money?
If your client is already considering surrendering their policy to get access to the cash value, there’s a good reason for it. For example, there may be some unexpected expenses that have come up, or they may be looking to supplement their retirement income.
Speak with your client about their cash needs, and help them understand that selling the policy would likely net them more than if they were to cancel the policy and take the surrender cash value. You can find out how much your client’s policy is worth with an online tool.
How life settlements are taxed
If your client is considering doing a life settlement, help them understand what kind of tax implications they’ll be dealing with.
Let’s say your client has paid $40,000 in premiums over the years and can sell their policy for $60,000. The $40,000 in paid premiums less any dividends received or withdrawals taken out is considered their basis and that amount is not taxable. In this example, we’ll say there were no dividends or withdrawals.
The remaining $20,000, however, is generally considered a gain and is subject to tax. With an effective tax rate of 25%, that’s a tax bill of $5,000.
The one exception to this rule is with viatical settlements. If your client has a life expectancy of two years or less, receiving a gain on a life settlement typically doesn’t trigger a tax liability.
As you walk through the tax implications with your client, recommend that they consult a tax professional to make sure they have all the facts. Recently things have changed, the 2017 Tax Cuts and Jobs Act included provisions that generally reduce taxes due on a life settlement transaction. A CPA can give your clients an idea of what their effective tax rate would be and if there are any ways to limit how much they’d owe.
Consider all of the alternatives
A life settlement can be a great way to help your clients get out of their policies with more cash in hand. But if they don’t want to get rid of the policy, there are other ways to cash in, so to speak.
For example, cash value life insurance policies allow you to take out a policy loan at a reasonable interest rate. While repaying the loan is recommended, your client technically doesn’t have to do so. The loan amount will be deducted from the policy benefit when they pass away.
If your client has an accelerated death benefit or long-term care benefit included in their policy and they’re eligible to take advantage of those riders, it might make more sense for them to go that route instead.
The important thing is that you take the time to provide your client with the best solution possible. While that might not necessarily put extra money in your pocket, establishing trust and putting their best interests first, it could open up opportunities for referrals and word-of-mouth advertising that can be difficult to get otherwise.
Compare The Best Insurance Quotes In The Country
Compare quotes from the top insurance companies and save!
Secured with SHA-256 Encryption
Frequently Asked Questions
Can I sell my client’s life insurance policy?
No, it is illegal to sell a life insurance policy that you do not own without the policy owner’s consent.
What is life insurance policy ownership?
Policy ownership refers to the individual or entity that legally owns a life insurance policy. The policy owner has the right to make decisions regarding the policy, such as changing beneficiaries, modifying coverage, and surrendering the policy.
Can a life insurance policy owner sell their policy?
Yes, a life insurance policy owner can sell their policy to a third party through a process called a life settlement. However, this requires the policy owner’s consent and typically involves the involvement of a licensed life settlement provider.
What is a life settlement provider?
A life settlement provider is a licensed company that helps facilitate the sale of a life insurance policy from the policy owner to a third party. The provider typically negotiates with potential buyers and handles the paperwork and financial transactions involved in the process.
Are there any restrictions on selling a life insurance policy through a life settlement?
Yes, there are typically age and policy value requirements for selling a life insurance policy through a life settlement. The specific requirements vary by state and insurance provider.
What should I do if my client expresses interest in selling their life insurance policy?
If your client expresses interest in selling their life insurance policy, you should direct them to a licensed life settlement provider to explore their options. It’s important to ensure that your client fully understands the potential consequences of selling their policy, including tax implications and the impact on their beneficiaries.
Compare The Best Insurance Quotes In The Country
Compare quotes from the top insurance companies and save!
Secured with SHA-256 Encryption
Zach Fagiano
Licensed Insurance Broker
Zach Fagiano has been in the insurance industry for over 10 years, specializing in property and casualty and risk management consulting. He started out specializing in small businesses and moved up to large commercial real estate risks. During that time, he acquired property & casualty, life & health, and surplus lines brokers licenses. He’s now the Senior Vice President overseeing globa...
Licensed Insurance Broker
Editorial Guidelines: We are a free online resource for anyone interested in learning more about insurance. Our goal is to be an objective, third-party resource for everything insurance related. We update our site regularly, and all content is reviewed by insurance experts.