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Sell Your Life Insurance Policy

This article was written by in Insurance. 3 comments.


Let’s say you have a life insurance policy that will pay $1,000,000 to your family in the event of your death. You’ve had the policy for several years, but you’ve decided that it is no longer needed. You don’t want to pay the monthly premium and there’s no one to receive the funds when you pass away, for some reason. The insurance company wants to cut their losses, so they’ll offer you $50,000 to buy the policy back. Perhaps another option is to let the policy lapse.

There is a third option. You could sell your policy to a third party investor [free Wall Street Journal article]. Rather than receiving $50,000, you’ll receive $200,000 for the asset you no longer desire.

Not a bad deal… unless you’re the insurance company. The insurance company is hoping it will never have to make your payout, that the policy will lapse. When you sell the policy to an investor, the chances of that happening are dramatically reduced. This whole process could, according to the article, end up raising the cost of life insurance for everyone, particularly those who do not sell their policies to investors.

The investors who take part in the purchasing of individual life insurance policies are the type who pay cash in exchange for an income stream. You’ve probably seen the companies who want to buy winning lottery tickets. An example of a settlement-purchasing company mentioned within the article is Peach Holdings, LLC which operates Peachtree Settlement Funding. That company apparently has no relation to the makers of the software Peachtree Accounting.

The process of selling policies to a third party sounds good for some consumers while bad for others and for insurance companies. It would be hard to turn away an offer to buy the policy for four times what the issuer offers, though.

Updated July 16, 2010 and originally published May 2, 2006. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 3 comments… read them below or add one }

avatar Easy E

Couldn’t insurance companies create policies that can not be sold. That would solve the entire problem.

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avatar jim

You can name a beneficiary and so when you “sell” it, you set the beneficiary as the party you’ve sold it to. They can’t stop you from renaming the beneficiary.

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avatar Dee

Flexo is absolutely right these deals are a good for the consumer and investor but a really bad for the life insurance companies. They set their pricing based on the assumption of policy lapses. If these deals continue to happen I wonder what’s going to happen to prices? Could we see an increase? If I was approached for one of these deals I would run the other way. I wouldn’t want a stranger owning a policy on my life because I’d be worth more to them if I was dead. Doesn’t that give you the creeps? The industry is so unregulated right now that anyone can be an “investor”.

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