Purchasing a universal life insurance policy is a long-term investment, offering financial security and peace of mind for you and your loved ones. However, life is unpredictable, and there may come a time when, due to a chronic or life-threatening illness, you need immediate access to cash. In such situations, cashing out your policy through a life settlement or viatical settlement could be a viable solution.
If you’re considering cashing out your universal life insurance policy, this guide will help you understand the process, determine if you’re eligible, and maximize the value you receive.
Understanding Universal Life Insurance: What You Need to Know Before Selling
Universal life insurance is a type of permanent life insurance policy. It is different from other types of permanent life insurance policies, such as whole life and variable life, in that the premium and death benefit can be adjusted to meet the policyholder’s needs. The policyholder has the flexibility to change the amount of the premium and the death benefit, within certain limits.
This makes universal life insurance a good option for those who want the security of a permanent life insurance policy but who also want the flexibility to adjust their premiums and death benefit to suit their changing needs.
Can You Cash Out Your Universal Life Insurance Policy?
Why You Might Consider Cashing Out
Universal life insurance policies are designed to provide lifelong coverage, but life can throw unexpected challenges your way. For example, consider a scenario where an individual is diagnosed with a serious illness and suddenly finds the premiums on their universal life insurance policy to be a significant financial burden. In such cases, cashing out life insurance through a life settlement can offer a lifeline, providing a lump sum of money that can be used to cover medical bills, improve quality of life, or simply relieve financial stress.
How Does Selling Work?
When you sell your universal life insurance policy, you enter into a life settlement, where an investor purchases the policy and takes over the premium payments. In return, you receive a lump-sum payment, which is often higher than the policy’s cash surrender value but less than the death benefit. This process allows you to unlock the value of your policy while you are still alive, providing immediate financial relief or the freedom to allocate your funds elsewhere.
For many policyholders, this option is particularly attractive when they no longer need the coverage or find the premiums too costly to maintain. According to the National Association of Insurance Commissioners (NAIC), life settlements can offer significantly more than surrendering the policy back to the insurance company, making it a viable option for those in need of cash.
Key Considerations Before Selling
Before deciding to cash out your universal life insurance policy, there are several factors to keep in mind:
- Make Sure You’re Getting a Fair Price The value of your policy is influenced by factors such as your age, health, and the policy’s death benefit. To guarantee you’re receiving a fair offer, it’s important to work with a reputable life settlement company, like American Life Fund, who can guide you through the process and help you understand the true market value of your policy.
- Loss of Coverage Once you sell your policy, you forfeit the life insurance coverage it provided. This is a critical point to consider, especially if there is any chance you might need the coverage in the future. It’s important to evaluate your financial situation and make sure you have other means of providing for your dependents if needed.
- Cashing In Your Investment Selling your policy is essentially cashing in an investment that you have built over many years. While this can be a strategic move, especially if you need the funds now, it’s important to weigh all your options carefully. Consulting with a financial advisor or tax professional can help you understand the full implications of this decision, including any potential tax liabilities as outlined by the IRS.
How to Determine the Value of Your Universal Life Insurance Policy
The surrender value of your Universal life insurance policy will depend on several factors, such as the face value of the policy, your age, health status, and your policy type.
A life settlement company such as us at American Life Fund can work with you to determine the fair market value of your universal life insurance policy.
Can I Withdraw Money From Universal Life Insurance Policies?
Yes, this is possible. A policy owner of universal life insurance has the ability to access their cash in the form of either a life insurance loan, life settlement, or viatical settlement.
It is important to remember that withdrawals from a policy’s cash value reduce its death benefit and have different tax consequences.
Owners of universal life insurance can borrow against the cash value of their policies, but the loan must be paid back or the loan will reduce the policy’s death benefit by the amount of outstanding debt. If a policy is still in force when a loan is outstanding, there might be taxes owed. There is also interest associated with taking a loan out from your policy.
A life or viatical settlement may be a better option for policyholders who wish to access the value of their coverage.
Eligibility Criteria for Selling Your Universal Life Insurance Policy
Generally, a universal life insurance policyholder must have a serious illness such as cancer, ALS, Alzheimer’s, or heart disease along with a policy of $150,000 or more in order to sell it.
If the insured doesn’t have a serious illness, they must be 75 or older with a universal life insurance policy of $150,000 or more.
When Should I Consider Selling my Universal Life Insurance Policy?
There is no easy answer to this question, as it depends on a variety of factors specific to each individual policy and situation. In general, however, there are a few times when selling a universal life insurance policy may be the right decision.
If the policy has stopped earning interest and the premiums are no longer affordable, it may be time to sell. Another reason to sell might be if the policyholder needs access to their policy’s funds immediately and does not want to wait for the policy to mature. Finally, selling may be the best option if the policyholder’s financial situation or health changes significantly.
Ultimately, whether or not to sell a universal life insurance policy is a personal decision that should be made after considering all of the pros and cons.
Benefits of Selling Your Universal Life Insurance Policy
There are several reasons why selling your universal life insurance policy might be your best decision.
Get Enough Cash to Cover Medical Expenses.
By selling your universal life insurance policy, you can get a lump sum of cash that can be used to cover bills, food, transportation, or any other costs associated with your illness.
Possibility of Getting More Than The Cash Value of Your Policy.
If you have a universal life insurance policy with a cash value, you may be able to sell it for significantly more than the cash value.
No Responsibility Over Premium Monthly Payments.
Selling your universal life insurance policy will ease the financial burden of paying a monthly premium on your policy.
Getting More Money From Your Universal Life Insurance Policy Through a Viatical Settlement
When a person is diagnosed with a life-threatening illness, they often have to face difficult decisions about their future, including their finances. One option that may be available to them is a viatical settlement. A viatical settlement is when a person with a life insurance policy sells the policy to a viatical settlement company in exchange for a lump sum of money. This can be a helpful option for people who need the money to pay for medical expenses or to settle debts.
There are many companies that offer viatical settlements, and it is important to do your research before choosing one. We at American Life Fund are a viatical settlement company that is here to help you in your time of need. Click here for a free estimate on your universal life insurance policy settlement.
Selling a Universal Life Insurance Policy With a Life Settlement
You may want to consider selling your universal life insurance policy when you reach a certain age.
This can be a great option for those who are no longer interested in owning a life insurance policy or can’t afford the premiums. It’s also a good way to get some extra money if you’re facing financial difficulties.
If you’re considering selling your life insurance policy, consult with an experienced life settlement company like us here at American Life Fund.
Frequently Asked Questions
Do I Have to Pay Taxes on my Viatical Proceeds if I Sell my Universal Life Insurance Policy?
No. Viatical settlements are usually not taxed.
What Should I do Before Applying For a Viatical Settlement?
Before applying for a viatical settlement, you can do a few things.
- Check to see whether you qualify for a viatical settlement.
- Gather basic policy information.
- Decide how you’ll utilize the cash.
In Conclusion
Selling your universal life insurance policy may be a difficult decision. However, it could provide you or your family with much-needed financial assistance if your health deteriorates or you need cash quickly. To get an offer on your universal life insurance policy, contact us for a no-obligation estimate for your policy.
Viatical and life settlement companies like American Life Fund can help by providing you with a lump sum of cash in exchange for your life insurance policy. Call us today at 877-261-0632 or email us at info@americanlifefund.com to learn more about how we can help you.
