Here's something most people don't know: that life insurance policy sitting in your filing cabinet might be worth serious cash—even if you're still alive. If you're 65 or older and no longer need your coverage, or if you're facing a terminal illness, selling your policy could put tens or even hundreds of thousands of dollars in your pocket. It's called a life settlement (or a viatical settlement if you're terminally ill), and it's a legitimate financial strategy that could be worth far more than simply letting your policy lapse or cashing it in with your insurance company.
The catch? Most Americans have never heard of this option. In fact, 68% of people aren't familiar with viatical settlements, and 55% don't know about life settlements. That means billions of dollars in potential value go unclaimed every year because people simply don't know they can sell. Let's fix that.
What Does It Mean to Sell Your Life Insurance Policy?
When you sell your life insurance policy, you're transferring ownership to a third-party buyer (often a life settlement company or investor) in exchange for a lump sum of cash. The buyer takes over premium payments and becomes the beneficiary—meaning they collect the death benefit when you pass away. You walk away with money now instead of leaving the death benefit to your heirs later.
There are two main types of policy sales: life settlements and viatical settlements. A life settlement is for seniors (typically 65+) with a life expectancy of more than two years. These typically pay 20-30% of your policy's death benefit. A viatical settlement is for people with terminal illnesses and a life expectancy of 24 months or less. Because the buyer expects to collect the death benefit sooner, viatical settlements pay much more—usually 50-85% of the death benefit.
In 2024, the average life settlement payout was $222,807, which was 6.5 times higher than what policyholders would have received by surrendering their policies to their insurance companies. That's real money that can fund retirement, pay medical bills, or simply improve your quality of life.
Do You Qualify to Sell Your Policy?
Not every policy can be sold, but if you meet certain criteria, you're likely eligible. For standard life settlements, you generally need to be 65 or older and own a policy with a death benefit of at least $100,000. Some buyers will consider policies as small as $50,000 if you have health issues that shorten your life expectancy. Your policy also typically needs to be at least two years old.
For viatical settlements, the requirements are different. You need a terminal illness with a life expectancy of 24 months or less—conditions like late-stage cancer, ALS, advanced heart failure, or AIDS often qualify. Most viatical buyers prefer policies worth at least $150,000, though smaller policies may be considered depending on your prognosis.
The type of policy matters too. Permanent policies like whole life, universal life, and variable life are the most marketable because they have cash value and don't expire. Term life policies are harder to sell unless they're convertible to permanent coverage. Your health plays a huge role: the shorter your life expectancy, the more valuable your policy becomes to buyers, which is why viatical settlements pay so much more than standard life settlements.
When Does Selling Make Sense?
Selling your life insurance isn't for everyone, but there are clear situations where it's the smart move. If you bought a policy decades ago to protect your family and your kids are now financially independent, you might not need that coverage anymore. Why keep paying premiums on protection nobody needs? Selling converts a future benefit into cash you can use today.
Medical expenses are another common reason. If you're facing a terminal illness, a viatical settlement can help pay for treatment, hospice care, or simply make your remaining time more comfortable. Even with a longer life expectancy, if you need money for long-term care or mounting medical bills, a life settlement might make more financial sense than draining your savings.
Premium affordability matters too. If your premiums have skyrocketed and you're struggling to keep the policy in force, selling beats letting it lapse. When a policy lapses, you get nothing—but selling puts money in your account. The same logic applies if you're considering surrendering your policy to the insurance company. Remember: life settlements typically pay 4-7 times more than cash surrender value. Before you sign that surrender form, get a life settlement quote.
That said, selling isn't always the right choice. If your beneficiaries still depend on that death benefit, keep the policy. If you're in excellent health and expect to live many more years, the payout might be disappointingly small. And if you have other financial resources to cover your needs, holding onto the policy might serve your estate planning goals better. Talk to a financial advisor before making this decision.
What About Taxes?
Here's the part nobody likes to think about: yes, selling your life insurance policy has tax implications, and they can be complicated. The IRS considers the sale a taxable event, meaning you'll owe taxes on at least part of what you receive.
The taxable amount is generally the difference between what you receive and the total premiums you've paid over the years. If you paid $50,000 in premiums and sell your policy for $200,000, you'll owe taxes on $150,000. That gain is typically taxed as ordinary income, not capital gains, which means it could be taxed at rates between 10% and 37% depending on your total income. If your policy has cash value, the calculation gets even more complex—you might pay ordinary income tax on part of the gain and capital gains tax on another part.
You'll receive a Form 1099-R from the buyer, and you'll need to report the transaction on Schedule D of your Form 1040. This isn't DIY territory—talk to a CPA or tax professional before you sell. They can help you understand exactly what you'll owe and whether the after-tax proceeds still make the sale worthwhile. Sometimes the tax bill is manageable and the sale still makes perfect sense. Other times, it might change your calculations.
How to Get Started
If you think selling your policy might be right for you, start by contacting a licensed life settlement broker. These professionals work on your behalf to get quotes from multiple buyers and negotiate the best offer. Most life settlement companies require you to submit your policy information and undergo a medical review. They'll evaluate your life expectancy, policy details, and premium costs to determine what they're willing to pay.
The process typically takes 60-90 days from start to finish. You'll need to provide medical records, policy documents, and premium payment history. Once you accept an offer, you'll sign over ownership of the policy, and the buyer will send you a check. In 2024, over 2,600 life settlement transactions were completed through licensed brokers, so this is a well-established market with established processes and consumer protections in place.
Before you commit, get multiple quotes. Different buyers have different appetites for risk and may value your policy differently. Also talk to your financial advisor and tax professional to make sure you understand all the implications. This is a one-way decision—once you sell, you can't change your mind. But if the math works and you no longer need the coverage, selling your life insurance policy could be one of the smartest financial moves you make.
