Can I trade my life insurance for cash?
Selling your life insurance policy
Yes, you can. There is a dark and morbid new market for life insurance policies from people with terminal illness. Companies will buy your life insurance policy assured sum from you at a discounted value and give you the cash in exchange.
In addition, private investors have now caught on to the reliable equity in life insurance policies and are starting to buy them up as a kind of stocks and shares portfolio.
Those buying life insurance policies from people with term life insurance are betting that that person will die within their terms in order to get the pay-out. With whole of life cover, the guarantee is there but the profitability is based on how long the insured person lives.
If you’re the sort of person who doesn’t blink at betting on a person’s life expectancy then you can make big returns on your investment. People will often sell their assured sums at 40 or even 30% of their value.
If you are the person selling, well there is a whole host of financial implications to consider, and you might be wondering who these people who are willing to sell their life insurance policies are.
Well, imagine you are smart and take out life insurance when you are young so that you can enjoy low premiums and better value for money. You are expecting to settle down and start a family, relying on your life insurance policy as financial security for your future children and spouse should anything happen to you.
But life doesn’t always go to plan and you never settled down enough to start a family and have no body financially dependent on you.
You then find out that you have a terminal illness and less than three years left to live. Suddenly, that assured sum on your life insurance of £300,000 looks very tempting to have for yourself. After all, there is no one who will really need it after you have died and you have paid the premiums all your life.
If you want to sell your life insurance policy then first look to see if you have been offered a surrender fee from your insurer. You can use this surrender fee as a bench mark when negotiating a sale price with acquisition companies or private investors.
Next you might want to make sure that the additional income for the life insurance policy won’t push you into a new tax bracket and leave you subject to a hefty tax bill. Also, if your life insurance policy was written in trust then selling it will release the cash and affect your estate, which could then be pushed above the current nil rate band of £325,000.
Another option - Critical Illness Cover
If you want to plan for situations like these then you can add critical illness cover on to your life insurance. It could end up being a lot cheaper than having to sell your life insurance policy if you become terminally ill.
Critical illness cover will pay-out your entire lump sum to you if you become terminally ill, giving you the opportunity to spend it as you like. Even if you do have children or dependants, you can use the money to pay for events like a wedding or university fees whilst you are still around to see it happen. This could be a much easier option for you in the face of something so difficult as a terminal illness.
Each life insurance company has a different definitive list of critical illnesses that they will insure against so we advise comparing the various insurers to find one that suits your needs. The added cost to your premiums will vary but will almost definitely be cheaper than selling your policy for 30% of its value further down the line.
Critical illness cover or some kind of income protection is something really worth considering if you don’t know how your family would cope financially if you were no longer able to work. If you have the larger income in your family then insuring against illness and absence from work can give you great peace of mind.
For more information on how to buy critical illness cover or income protection insurance, give one of our advisors at CUKQ’s a call.