Many people wonder whether you can sell your term life Insurance policy, especially if their financial situations change or they no longer need the original coverage.
Direct Answer
Yes, in some situations you can sell your term life insurance policy through a process called a life settlement or viatical settlement.
This option often applies when policies are convertible to permanent insurance or if the insured is terminally or chronically ill.
Offers for term policies are typically lower than for permanent policies since there is no cash surrender value, but a market exists for certain qualifying term contracts.
The policy buyer becomes both the new owner and beneficiary, takes over paying premiums, and gets the death benefit when the insured passes away.
Eligibility, offer amounts, and legal requirements vary by state; some states have specific waiting periods or age/health criteria.
The sale process may take several weeks to several months, involves health and policy review, and typically incurs fees/commissions from providers or brokers.
Proceeds are usually less than the death benefit but can exceed surrender values, especially if the insured has limited life expectancy.
Tax consequences may apply, and it is important to confirm current rules via official sources like your state insurance department or the IRS.
Who This Policy Is For & Eligibility
Term life insurance policyholders who are no longer in need of the coverage, facing financial hardship, or whose policy is convertible to a permanent product.
Those who may qualify for a viatical settlement due to terminal or chronic illness and meet settlement company/provider guidelines.
Older adults (often 65+) or those diagnosed with certain health conditions may receive higher offers.
Policies typically must have a minimum face value (often $100,000 or above) and at least 1–2 years of premium payment history, but these thresholds vary by provider and state law.
State regulations may restrict or govern the sale; not all term policies are eligible. Some states may require minimum policy age or “seasoning.”
Verify licensing and consumer protections in your state via your state insurance department (official homepage).
Key Facts (At-a-Glance)
Item
Details
Eligible Policy Types
Convertible term, some non-convertible term (if buyer accepts risk); see settlement company rules.
Selling Methods
Life settlement (healthy or less ill), viatical settlement (serious illness/limited life expectancy).
Premium Payments
Buyer takes over after sale passes; seller has no further responsibility.
Offer Amount
Varies; often 10%–30%+ of face value, but sample/illustrative only. Can be lower or higher by policy, age, health.
Tax Implications
Proceeds may be taxable; IRS treats settlements differently from death benefits. See IRS life insurance tax information (official homepage).
Not all policies qualify; contestable/suicide period in force; outstanding loans or liens may disqualify.
Timeline
Several weeks–months; medical and policy review required. Varies by state and provider.
Consumer Protections
Some states mandate disclosures, waiting periods, and licensing. See NAIC life insurance consumer resources (official).
Pros
May provide more liquidity than surrendering a policy, especially for policies with little or no cash value.
No more premium payments required post-sale; buyer assumes all future payments.
Financial flexibility for the insured or their family in later life or during hardship.
Access to viatical settlements in qualifying terminal or chronic illness situations without needing to keep policy until death.
Legal and regulated in most U.S. states with consumer protections in place.
Cons
Sale price is often much less than the death benefit paid to original beneficiaries.
Not every term policy is eligible—non-convertible or newly issued policies may not qualify.
Third-party ownership: The buyer becomes beneficiary; privacy and future contact possible.
Possible tax liability—proceeds may be considered income or capital gains (see IRS rules).
Settlement companies and brokers charge fees and commissions that reduce net proceeds.
Family members lose potential death benefit if the policy is sold.
Costs & How Pricing Works
The primary pricing factors are age and health of the insured—those with reduced life expectancy generally receive higher offers.
Face value of the policy, size of remaining premiums, and whether the policy is convertible to permanent coverage are important for valuation.
Settlement brokers/providers evaluate premiums due, expected payout timeline, and any policy restrictions or exclusions.
Offers can range from a small percentage to a significant portion of the policy, but always less than the stated death benefit.
Fees and commissions (disclosed in settlement agreements) may include broker and provider costs and licensing fees.
Additional costs may arise if you consult legal or tax advisors (recommended for complex cases).
Claims & Payout
Upon sale, the buyer becomes the policy owner and beneficiary and is responsible for all premium payments.
When the insured passes away, the buyer claims the death benefit, not the original owner or family.
Settlement proceeds are typically paid in a lump sum to the seller at policy transfer.
Timelines for sales vary, and funds may be held in escrow until all forms and disclosures are completed.
Regulatory oversight by state insurance departments: Confirm buyer/provider is properly licensed (see state insurance department official homepage).
Possible right of rescission: Some states require a window (often 15–30 days) for the seller to cancel the transaction after signing.
Taxes & Beneficiaries
Settlement proceeds may be taxable as ordinary income or capital gains, not treated as tax-free death benefit except in some viatical settlement cases (terminal illness—verify via IRS).
Consult the IRS life insurance tax information (official homepage) for current rules and reporting requirements.
If the policy is sold, the buyer designates themselves (or their entity) as the beneficiary.
Remaining family/heirs receive no benefit from the death benefit after the sale.
Settlements can impact eligibility for public assistance programs (Medicaid, SSI, etc.); check with an advisor for your situation.
Alternatives & Comparisons
Surrender: For term policies, surrender value is often zero unless convertible, in which case convert first for possible settlement value.
Accelerated Death Benefit: Some policies allow advance payout for terminal illness without sale (ask insurer—terms vary).
Permanent Policy Loans: Only available if you convert your term policy, then take a loan against cash value.
Keep policy: If still affordable and needed; selling forfeits death benefit to family.
Gifting: Uncommon, but policies can sometimes be gifted to charities instead of sold, for legacy planning (tax effects vary; consult IRS).
Side-by-Side Comparison
Feature
Sell Policy (Settlement)
Surrender (Term)
Accelerated Death Benefit
Payout Amount
Potentially higher, but less than death benefit
Often zero for term
Depends on policy/illness
Who Gets Death Benefit
Buyer/settlement provider
No one (policy lapses)
Family receives remainder
Tax Consideration
May be taxable
None if no payout
Varies; check IRS
Eligibility
Varies by age, health, policy
Policy provisions
Terminal/critical illness only
Process Time
Weeks–months
Immediate or short
Varies
Important
This content is for educational purposes only. It is not insurance, legal, or tax advice.
Policy terms, eligibility, and pricing vary by state and insurer; verify details on official sources.
Quotes & Cost Drivers
Face value (death benefit) of the policy and remaining premium schedule.
Insured’s age and health—shorter life expectancies usually mean higher settlement offers.
Whether the policy allows conversion to permanent insurance—most buyers require this feature in term policies.
State-specific regulations controlling settlement provider offers and required disclosures.
Broker fees, commissions, and closing costs—all disclosed in settlement statements.
Coverage Optimizer Checklist
Evaluate if you still need life insurance; consider if a lower-value policy or accelerated benefit is preferable to outright sale.
Check with your insurer if your policy is convertible, and the timeline/deadline for doing so.
Obtain multiple settlement offers to compare terms, fees, and payout amounts.
Review tax implications using IRS official guidance before proceeding.
Frequently Asked Questions
What is a life settlement?
A life settlement involves selling your life insurance policy to a third party for a lump sum.
The buyer becomes beneficiary and pays future premiums.
Only certain policies and owners qualify; eligibility varies by company and state.
Can you sell a non-convertible term policy?
Rarely. Most buyers require convertibility (to permanent) before purchase.
Some niche providers may buy certain non-convertible policies for a reduced value, but offers are uncommon.
Are these transactions regulated?
Yes, almost all states regulate life settlements with licensing, disclosures, and mandatory rescission windows for sellers.
Verify any broker or settlement provider is licensed in your state; state insurance department (official homepage) resources available.
Will my family get any death benefit after I sell?
No. The buyer becomes sole beneficiary upon completion of sale.
Review details carefully before agreeing to a settlement.
What are the risks of selling my term policy?
Lower payout than keeping policy; privacy considerations as buyer may request health updates.
Potential tax impact and loss of benefits for dependents.
What is a viatical settlement?
Sale option for those diagnosed with a qualifying terminal or chronic illness.
Often regulated for consumer protection; check definitions/requirements with NAIC life insurance consumer resources (official).
Conclusion & Next Steps
Selling your term life insurance policy is possible under specific circumstances, particularly if the policy is convertible or you face health challenges.
Process complexity, payout size, and tax impacts require diligent comparison, consumer protection awareness, and frequently professional advice.
Always verify your situation and state’s current rules using your state insurance department (official homepage), and review IRS life insurance tax information (official homepage).
For broader information, review NAIC life insurance consumer resources (official).
