1. What is a Term Life Insurance Policy?
A term life insurance policy is a type of life insurance that provides a death benefit to the policyowner if the insured passes away within a specified timeframe. This differs from a permanent life insurance policy, which will remain in force until the insured’s death or until the policy’s maturity date.
Term life insurance is often called “temporary insurance” because it meets a temporary need. Often, term life insurance is a way for the primary earner in a household to ensure that if they pass away before retirement, a mortgage can be paid off, or their children’s educations will be funded. Many people also maintain term policies for other reasons, even long after retiring.
Many younger individuals and families buy term life initially because the premiums are substantially lower than a whole life insurance policy with the same death benefit amount. Although whole life insurance builds cash value over the years which can be withdrawn or borrowed, many people choose to buy a term life insurance policy with a larger death benefit to provide maximum financial security for their family.
The most notable drawback to term life policies is that if the policy expires while the insured is still alive, the policy pays no death benefit. The policy expires without value, and the non-refundable premiums paid never result in a death benefit being paid to the policy’s beneficiaries.
However, there are ways that a policyholder can gain value from a term life policy that they no longer wish to keep. In many cases, you can sell a term life policy through a life settlement. But unlike pursuing a life settlement for a whole life or universal life policy, there are a few steps you must undertake before selling a term life insurance policy.
2. Determine If Your Term Life Insurance Policy Is Convertible
When signing up for term life insurance, you may have been asked if you wanted to add a conversion rider. This rider allows you to convert a term life policy into a whole life policy. Typically, you must exercise your conversion privilege before the policy expires and before you turn age 65 or 70.
If you added a conversion rider, it will be specified in your policy with complete details on how and when you can convert from term to permanent insurance. If you’re unsure after reading your policy, a life settlement provider can review it with you and help determine if it is convertible.
These riders may come at an extra cost, but in exchange for the increased cost, you gain the ability to reclaim some of the value through a settlement or by carrying the policy through the remainder of your life.
If you don’t have a conversion rider as part of your term life policy, you’ll likely be unable to sell it through a life settlement. The exception to this rule is if you have a term policy and have an extremely serious or terminal health condition. In that case, you may still be able to sell your term life insurance policy, and you should contact a life settlement provider to discuss your options.
3. If You Have a Conversion Rider, Read It Carefully
Most conversion riders have expiration dates. If your term life policy is nearing its end, you should take some time to review the rider itself and ensure that it is still valid.
If the rider has not expired, you have the option to convert the policy from a term policy to a permanent policy – either whole life or universal life. Converting a policy is an important decision. Make sure you carefully review and understand your conversion rider before converting the policy if that is your decision.
If you have questions about your policy’s convertibility status, a specialist at a life settlement provider can explain details of the policy to you (provided you have the policy available) or can even contact your insurance carrier with you on the line to make sure you get all the answers you need.
