Pros and Cons of Selling a Life Insurance Policy
A life insurance policy can be regarded as a good investment for two reasons. Here we will look at the pros and cons of selling a life insurance policy.
- It offers financial protection to loved ones
- It can be used to raise cash in times of need
However, there can be no doubt that when selling a life insurance policy the only real winner is the buyer. That is because there is a vast difference between the surrender value of a policy and its true value, particularly in the first five-year period from the date of inception.
Policy buyers were quick to realise that they could earn more money from existing policies than by purchasing insurance from scratch. Buyers pay the seller the surrender value of the policy which is far below that of its true value.
Benefits for sellers – Selling a Life Insurance Policy
Some companies provide trading quotes and sales facilitation services to clients, advisors or intermediaries seeking to trade in policies.
It enables policyholders to achieve higher payouts because traded policies have a higher value than that offered for surrendered policies. Also, it gives the policyholder a simple solution to accessing funds immediately.
Benefits for buyers
Companies that facilitate policy trading deals also assist clients by finding institutions or individuals wishing to purchase insurance policies. Buyers are virtually guaranteed to make better returns on an existing policy than investing in a new product.
Traded policies – Selling a Life Insurance Policy
- Also known as second-hand policies, traded policies offer buyers a financially sound alternative.
- Traded policies have higher sales values than the surrender values obtained from insurance companies.
- Companies that specialise in facilitating the sale of policies do all the work for the sellers.
- They obtain quotes and facilitate the sale of traded policies.
- These companies also profess to be totally transparent.
- Apart from sourcing willing and able buyers, they will also disclose all costs, fee structures and sales prices throughout the management of the trading deals.
Overview
- Policyholders needing to access cash should discuss their situation with a financial advisor before making a final decision about the sale of their policies.
- Advisors can assess their clients’ individual circumstances on whether or not it is in their best interests to trade a policy.
- Remember, it is an industry standard that about 80% of policies used as collateral (loan debts) eventually lapse.
- A traded policy is like selling or buying any other asset.
- When selling a vehicle, change of the ownership is through outright cession. The same applies to traded policies.
- Because policies have higher sales values than the surrender values from insurance companies, this is the only method in which to access the tradable value of a policy.
- People who take out life insurance policies legally must sell them to raise cash.
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All info was correct at time of publishing