Life Settlement: How to Sell Your  Life Insurance

Underwritten by United of Omaha Life Insurance Company

11.19.2025 | Category: Life Insurance

A senior couple sits together and smiles while they discuss a life settlement and how to sell their life insurance policy.

Summary: Selling your life insurance policy to a third party for a lump sum is known as a life settlement. There are several factors to consider to determine your eligibility and the value of your policy. Different policy types have different stock market values. This article helps break down the various aspects involved in life settlements to help make an informed decision when it comes to selling your life insurance policy.

In this article:

What is a life settlement?
Are you eligible for a life settlement?
Should you sell your life insurance policy?
Alternatives to life settlement
Should you settle for a life settlement?
Frequently Asked Questions

Having a life insurance policy can help you feel secure knowing your loved ones are financially protected if you pass away. As life goes on, things may change, and sometimes that includes the need for a life insurance policy.

If you're wondering if you can sell your life insurance policy if you no longer need it, the short answer is yes. However, there are several factors to consider before making a life insurance transaction.

What is a life settlement?

Let's say you own an active life insurance policy and, as the insured person, you've decided it's no longer required since your children are grown, or you feel the premiums are affecting your expenses or maybe you need to access some cash. You may be able to sell your life insurance policy to a third party (other than your insurer) for a lump sum cash payment. Once sold, the new owner of the policy pays the premiums for it and becomes the recipient of the death benefit after you pass away.

Are you eligible for a life settlement?

One of the first things to check for when considering a life settlement, sometimes called a viatical settlement, is the eligibility criteria. Some of these criteria not only help determine if you qualify for a life settlement, but may also affect the amount of the life settlement that you could receive. While they may vary for different life settlement providers, here are a few key factors:

Health and age: Usually, the acceptable minimum age is 65 and over. In some cases, younger applicants could be considered if they have existing medical conditions. Generally, the lower the life expectancy, the higher the value of the life settlement. Another thing to keep in mind is that as your age increases, your health may deteriorate. This factor also determines the price of your premiums and ultimately, the value of your life settlement.
Coverage amount: The coverage amount for a life insurance policy also affects the value of its life settlement payout. For example, a policy with a coverage amount of $150,000 will have a lesser life settlement value than a policy with a $1,000,000 coverage. Additional factors include the terms of the life settlement provider and current market conditions.
Policy type: The type of life insurance policy you own is also considered in this process. While all types of life insurance policies can be sold, typically, whole life insurance or universal life insurance policies might seem more lucrative to the buyer since they may also have a cash value apart from just the death benefit. Although if the cash value is used, the death benefit may decrease, which might affect the life settlement value.
Policy terms: The terms of your life insurance policy, as outlined by your insurer, also affect this process. Policies that are active and don't have any financial obligation attached, like pending payments or loans, can be considered for life settlements.
Premium payments: The higher your premium payments are, the less the value you might receive for the life settlement, since the buyer will have to factor in the cost of the premium payments. For example, a whole life insurance or permanent life insurance policy may cost more than a term life insurance policy.

To better understand the details that determine your eligibility for a life settlement, you could speak with a licensed life settlement company or agent. Every case is unique, and the right information can help you make the best possible decision.

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Should you sell your life insurance policy?

Deciding whether or not receiving a life settlement is worth selling your life insurance policy may be tricky. While there is no cookie-cutter way to make this decision, let's weigh the options of this process. Understanding the various angles and aspects involved in selling your life insurance policy might help you make an informed decision.

Pros: Here are a few reasons some may consider as the pros of getting a life settlement.

Monetary requirements

Your life situation may have changed, and you now have significant financial obligations and require access to cash. In such cases, a life settlement can certainly help you reduce your debts or bills.

Living expenses

If your budget doesn't allow for the premium payments every month, a life settlement may provide you with a lump sum payout, which in turn could reduce your monthly expenses. This may give you more room for things that need your attention.

A viable option to end a life insurance policy

A life settlement, for the most part, may have more value than simply surrendering the policy (without a cash value) or getting it cancelled by not paying the premiums.

Cons: Now, let's take a look at some of the cons of getting a life settlement.

Life insurance needs

Once you sell your life insurance policy, you effectively lose the benefits that come with the policy. At a later stage, if you reconsider your choice and plan to get a new life insurance policy, it might cost more than your previous policy since you are now older and may not be as healthy as you were when you purchased the previous one.

Tax and financial implications

The life insurance settlement payout might be considered taxable income, depending on your situation. A death benefit, on the other hand, is tax-free in most cases. If you depend on public assistance programs, receiving this lump sum might disrupt those services.

Beneficiaries

It may be a good idea to consider your loved ones who depend on you financially or might require financial support from you. They will not receive the death benefit, which may have helped protect them financially from the lack of your income and the subsequent monetary burdens if you were to fall terminally ill or pass away.

Commissions

In some cases, if you choose to work with a life settlement broker, they may charge you a commission. This commission may or may not be negotiable and might take away a significant portion of your payout.

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Alternatives to life settlement

While selling your life insurance policy is an option, some might consider it a last resort for getting access to cash. Here are a few other options that could help alleviate some of the financial stress without losing out on the benefits of your life insurance policy.

Loans: You could speak with your financial advisor or a trusted bank to take a loan against your policy if it has a cash value feature. This is a viable option for those who have a permanent or whole life insurance policy with a cash value plan built into it. However, the death benefit may decrease if the cash value is used.

Surrender your policy: Another option could be to surrender your policy and collect the accrued cash surrender value that's grown with each premium payment made toward the policy. While your coverage comes to an end, you can still reap the benefits of the saved-up cash value. The death benefit may decrease if the cash value is used. Keep in mind that this only applies to certain types of policies and can vary with every insurer.

Change your life insurance policy: You could modify your existing life insurance policy to reduce your premium payments. One such example would be to reduce the coverage amount of your policy. Another way could be to check with your insurer for any current offers or plans that might be cheaper than what you originally signed up for.

Should you settle for a life settlement?

Life can be unpredictable and could potentially throw a wrench in even the most well-laid-out plan. Whether you decide to sell your life insurance plan or not should be based on the right information with the right kind of assistance.

At United of Omaha, a Mutual of Omaha company, you can rest assured knowing that your life insurance needs will be tailored to your unique situation. We can help you find the right kind of life insurance policy that can benefit you when you need it the most.

You could also reach out to us to speak with a licensed life insurance agent or producer.

866-886-1709

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Frequently asked questions (FAQs)

How much would I get if I sold my insurance policy?

There are several factors that determine the value of a life insurance policy, including your age, health status, policy coverage amount and more. You can speak with a licensed life settlement agent for more details.

Do I have to pay taxes if I sell my life insurance policy?

Yes. Your life settlement payout will be subject to taxes for both federal and state taxes. Your exact tax percentage may vary with your state of residence.¹

What is a life settlement provider?

A life settlement provider is the person or company that buys your life insurance policy if you decide to sell it. In exchange, you receive a lump-sum payment. After the sale, they become the new owner and beneficiary of the policy. That means they’re responsible for paying future premiums and will receive the death benefit when the time comes, not your original beneficiaries.²