People usually purchase life insurance (and especially term life insurance) only to provide a benefit to the family at death. In the past, if you had insurance and no longer needed the death benefit, you would cash in the policy for its surrender value or in the case of term insurance, just stop paying premiums and let the policy lapse. If you do this today, especially if you are over age 60 or have had poor health since purchasing the policy, you may be missing out on a windfall of money.
Now, there are many companies who will buy your insurance polices from you for much more than you would get by cashing them in. This is even true of term insurance policies, so long as they are still convertible. (Many term life insurance policies are convertible prior to the insured reaching age 65).
For example, I have managed a transaction in which our client had a number of term life insurance policies, all 4 of which were still convertible. The death benefit on all of these policies totaled about $6.0 million dollars. Since these were term policies and the client was still living, they had no cash value whatsoever.
The client only now needed about $1.0 million of term insurance so he planned to simply stop paying premiums on his excess term insurance. After speaking with us about his plans, we brought in a person whose business is selling life insurance policies on the secondary market. This broker was able to sell the extra term life insurance policies for close to $600,000.
In short a client was able, with our guidance and his other advisors’ assistance, to turn otherwise valueless term insur-ance policies into about $600,000 in cash. The sales prices can be even more lucrative for cash value type policies. It is clear that a sale of life insurance is certainly something you should at least investigate when you are considering whether to drop or cash in a policy, whether it is personal or business insurance.
Cynthia Umphrey helps families and business owners make significant personal and professional life decisions. Ms. Umphrey calls upon over 10 years of experience in estate planning, probate administration, business structuring and business exit planning to guide you though life's most important choices.