Why would someone turn around and sell policy? It turns out there are a handful of very real, very practical reasons someone might make this choice.
This process is called a “life settlement,” and while it’s not something most folks think about every day, it’s an option worth understanding—especially if you or a loved one has a life insurance policy you no longer need, want, or can afford.
In this article, we’re going to break down exactly why someone would sell their life insurance policy, what the process looks like, what the pros and cons are, and what you need to know before even considering it.
Reasons Why People Sell Their Life Insurance Policy
There’s no one-size-fits-all reason for selling a life insurance policy. People do it for a variety of personal, financial, and medical reasons. Here’s a table that gives you a quick look at some of the most common motivations:
| Reason | Explanation |
| No Longer Need the Coverage | Kids are grown, debts are paid, no one is financially dependent anymore. |
| Can’t Afford Premiums | Monthly premiums have become too expensive, especially on a fixed income. |
| Want to Fund Retirement | Selling the policy provides a lump sum to support retirement needs. |
| Facing Medical Issues | Terminal or chronic illness may prompt someone to cash out for care costs. |
| Better Investment Opportunity | Prefer to use the money in other ways like real estate or stocks. |
| Policy is Underperforming | Policy isn’t growing or returning value as expected. |
| Change in Estate Planning | New financial or family dynamics mean the policy is no longer needed. |
Let’s unpack some of these in more detail.
Common Reasons People Sell Their Policy
Let’s go through these reasons with a bit more depth and a conversational lens. Think of this as your friend walking you through it, not a stiff financial advisor throwing jargon at you.
The Coverage Just Isn’t Necessary Anymore
Imagine buying life insurance in your 30s when you’ve got young kids, a mortgage, and a spouse depending on your income. Fast forward 30 years: your kids are self-sufficient, the house is paid off, and your spouse has their own retirement income. That policy doesn’t serve the same purpose it used to.
In this scenario, selling the policy could feel like a smart move. Rather than continue paying premiums for coverage you don’t really need, you can turn that policy into cash and use it however you want.
Premiums Are Just Too High
Life insurance policies, especially permanent ones like whole or universal life, can get expensive as you get older. If you’re on a fixed income in retirement and the premiums are eating up your budget, it might not be sustainable to keep the policy.
Selling it could give you relief from that financial burden and hand you a lump sum you could actually use.
Need Extra Money for Retirement
Let’s face it—retirement can be expensive. From medical bills to everyday living costs, sometimes those savings don’t stretch as far as we hoped. If you’re sitting on a life insurance policy that has value, it could become a financial cushion.
Many people sell their policies to fund things like travel, hobbies, or simply a more comfortable lifestyle in retirement. It’s not always about surviving; sometimes, it’s about living.
Serious Health Issues
This is a tough one. Life insurance policy might be more useful as cash today to help pay for treatments, in-home care, or to simply improve quality of life.
There’s actually a specific kind of life settlement for this called a viatical settlement. It’s designed for people with serious medical conditions and often offers a higher payout than a regular life settlement.
Better Use for the Money
Some folks are financially savvy and might feel that their money could be working harder elsewhere. Maybe they want to invest in property, help their grandkids with college, or start a business. If the life insurance policy isn’t offering strong returns, they may decide to sell it and reallocate that money toward something more productive.
The Policy Isn’t Performing Well
Some life insurance policies have a cash value component that’s supposed to grow over time. But that doesn’t always happen. If a policy underperforms or if fees start outweighing benefits, people might consider cutting their losses and cashing out while they still can.
A Shift in Estate Planning
Sometimes life just changes. Marriages, divorces, new grandchildren, the death of a beneficiary—these shifts can completely change your estate planning goals. What once made sense might now feel unnecessary. Selling a policy is sometimes part of a broader plan to restructure finances or simplify things for heirs.
FAQs
Is selling a life insurance policy legal?
Yes, it’s absolutely legal. Life settlements are regulated in most states, and there are licensed brokers and providers who facilitate these transactions. Always work with a reputable professional.
How much can you sell a life insurance policy for?
It varies widely based on your age, health, type of policy, and how much the death benefit is. Typically, you can expect anywhere from 10% to 30% of the death benefit—but in some cases, it can be more.
Who buys these policies?
Generally, institutional investors, pension funds, or other financial firms buy them. They take over premium payments and collect the death benefit when the policyholder passes away.
Is there a catch to selling my policy?
Well, there are trade-offs. Once you sell, you’re no longer insured, and your beneficiaries won’t get the death benefit. You may also owe taxes on the money you receive. It’s not a decision to make lightly.
What’s the difference between a life settlement and a viatical settlement?
A viatical settlement is typically for someone who’s terminally ill. Life settlements are more general and are often pursued by seniors who are simply looking to offload a policy they don’t need.
Can I sell a term life insurance policy?
Yes, but only under certain conditions. Usually, it needs to be convertible to a permanent policy first. Otherwise, it likely doesn’t have enough value to attract a buyer.
Will I need to go through a medical exam?
Possibly. Buyers often want to understand your health status because it affects the value and risk of buying your policy. Expect some level of health evaluation or medical record review.
How long does the process take?
It can take a few weeks to a few months, depending on how complicated your policy is and how fast the paperwork moves.
Conclusion
Selling a life insurance policy isn’t for everyone—but for some, it can be a smart and practical decision. Whether you’re looking to reduce expenses, fund your retirement, or handle unexpected medical bills, converting your policy into cash might make a lot more sense than just letting it lapse.
The key is to go into it with eyes wide open. Understand the pros and cons, talk to a financial advisor or estate planner, and always read the fine print. What sounds like a good idea today should still feel like a good decision years down the line.
At the end of the day, life insurance is supposed to give you peace of mind. And if selling it provides that same peace—whether it’s financial relief, flexibility, or freedom—it’s an option worth considering.