Welcome to your “2-Minute Money Manager,” a short video feature answering money questions submitted by readers and viewers.
Today’s question is about selling an old life insurance policy — something that could bring extra cash to those who have outgrown the need for insurance.
I did this story for TV a few years ago. It’s an interesting idea, but might not be as easy as it seems.
Watch the following video and you’ll pick up some valuable info. Or, if you prefer, scroll down to read the full transcript and find out what I said.
You also can learn how to send in a question of your own below.
For more information, check out “7 Questions You Need to Ask Before You Buy Life Insurance” and “14 Insurance Products That Are a Waste of Money.” You can also go to the search at the top of this page, put in the word “insurance” and find plenty of information on just about everything relating to this topic.
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Got a question of your own to ask? Scroll down past the transcript.
Don’t want to watch? Here’s what I said in the video
Hello, and welcome to your “2-Minute Money Manager.” I’m your host, Stacy Johnson, and this answer is brought to you by MoneyTalksNews.com, serving up the best in personal finance news and advice since 1991.
Today’s question comes to us from Carol:
“I saw a commercial on television saying I might be able to sell my term life insurance policy. Is it possible to sell my insurance?”
Carol, I’ve got three things for you:
Thing No. 1: It’s possible to turn your life insurance policy into cash
Years ago, I did a TV news story about selling life insurance policies. The broker I interviewed told me only about one in four policies he sees are worth selling. Why? Well, remember what we’re talking about here: When you’re selling a life insurance policy, you’re selling it to somebody who’s waiting for you to die. After all, that’s how the buyer gets paid.
Once you understand that, you realize the older you are and the sicker you are, the more your policy is worth, because the buyer won’t have to wait as long for the payday.
In addition — according to the broker I interviewed — because the process is a hassle, it’s more difficult to find buyers for policies with a face value of less than $100,000. Put all this together and you can see there’s not a giant market. There is, however, a market. Just because your policy might be less than $100,000 or you’re not super-sick doesn’t mean you can’t sell your policy. Just don’t get your hopes up.
Thing No. 2: How you sell your policy
While you can sell your policy directly to somebody who wants to buy it, you can also go to a broker — like the one I interviewed — who will hopefully get different competing bids for your policy. But before that happens, you’ll need to take a physical, one of many hassles you’ll undergo.
Thing No. 3: Be careful
There have been lots of rip-offs in this business, so you need to make sure you’re dealing with someone reputable. The wrong way to do it is to respond to an ad. The right way to do it is to go to a reputable insurance agent and ask if he or she knows of an honest company to deal with. You might also check with an eldercare lawyer or an accountant. When you do find a potential company to deal with, check with your state’s insurance department and make sure the company is properly licensed.
In short, this is a complicated business that requires research. Start by reading up on it.
Also, be aware also there are alternatives to selling your policy. If you can’t make the premium payments and want to keep the policy, you might be able to lower your death benefit and get the premiums reduced. If it’s a cash-value policy, you might be able to borrow against it. Talk to the insurance company holding the policy or the agent who sold it to you.
Carol, I hope that answers your question. And I hope you’ll meet me right here next time.
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The questions I’m likeliest to answer are those that will interest other readers. In other words, don’t ask for super-specific advice that applies only to you. And if I don’t get to your question, promise not to hate me. I do my best, but I get a lot more questions than I have time to answer.
I founded Money Talks News in 1991. I’m a CPA, and have also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate.
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