You spend your whole life pouring money into your bank account. Then retirement hits and suddenly the cash flow stops. You might be pulling from your assets and resources to come up with money rather than your monthly income from your career. 

You’re looking over your monthly payments and you see the life insurance payments you’ve been making for many years. Is that old life insurance policy worth anything? You’ve heard of people getting cash out of their policies. Is your policy worth more than what the insurance company is telling you?

In most cases the answer is yes, a lot more. Shocking, right? So, let’s not take their word for it.  When you consider how to calculate the value of a life insurance policy, what factors go into the buyer’s decision making?  What is considered a “qualified policy”?  Can you hire somebody to manage the process for you who might work on commission, whose job it is to secure the highest offer?

Factors That Determine Life Insurance Policy Value

When considering your whole or universal life insurance policy there are a few factors that will determine its value for when you sell. If you have term life insurance then the process will look a little differently. You can potentially sell a term policy for cash if you convert it into a permanent product. It can then be sold via a life settlement.

Both whole life insurance and universal life insurance carry value. Ultimately the policy’s market value will determine what someone is willing to pay for your policy.

So, what makes your policy more valuable?

Face Amount

Face amount, how much the policy will pay to the beneficiary if you were to die. The higher this number is, the more someone would pay for the policy. 

Cash Value

Depending on how long you have had the policy, there is likely cash that is built up in the policy just by paying your premiums. The longer you’ve been making payments the larger your cash value would be. 

Health of The Insured

When you first applied for life insurance you wanted to be in tip-top health. You are likely not as healthy now as you were then. It happens to the best of us. 

This actually raises the value of your policy in a life settlement marketplace. 

When you started your life insurance policy, you may have added the Accelerated Death Benefit (ADB) rider to the policy. This allows the policyholder to receive some of the death benefit while they are still alive. An ADB will raise the value of your policy significantly and many life settlement companies don’t point it out. In the case of Ted Muller, his ADB rider was remarkably higher than his cash surrender amount. 

Type of Life Insurance Policy

You may have a universal life insurance policy, whole life insurance policy, or variable life insurance policy. All these types of policies can have market value. 

One is not necessarily worth more than the other because you need to take into account  interest rates and dividends being paid. 

For example, insurance companies will often pay whole life policyholders some of the company’s profits back to their policyholders. If your whole life policy pays dividends then it likely holds more cash value. 

What Can I Get From My Life Insurance Company?

You may have seen the opportunities your insurance company has made available for you to get money from your policy. There are three options they will usually provide:

Cashing Out Your Policy

If you decide you no longer want your policy coverage, you can inform your insurance company. You then receive the remaining cash surrender value in the policy. There may be surrender charges for ending your policy early.  

Borrowing From Your Life Insurance Policy

If you have accumulated enough cash value in your policy, you can borrow money from your policy. You’ll pay interest on this loan but the money is going back into your policy. You can talk with your insurance company to understand how large of a loan you are able to take out. That amount depends on the same factors that influence the value of the policy in the first place.  

Withdrawing the Cash Value 

There is also an option to make a withdrawal from the current cash value of your policy without making it a loan or canceling the policy coverage. There may also be surrender charges but this all depends on how long you’ve had the policy. Of course, withdrawing money or taking out loans will all decrease the value of your life insurance policy in the long run. 

Is It Worth It to Sell My Life Insurance Policy?

If you are considering one of the previously discussed options, you need to hear this. Selling your policy to a life settlement company will likely give you a substantially larger payout. 

The life settlement company either becomes the buyer or finds a buyer on your behalf who will pay the insured (you) a single cash payment upfront. This amount can be double what you could get from insurance companies. The buyer becomes the new beneficiary. They’re now taking on the responsibility of paying the monthly premiums as well.

Online Life Settlement Calculator

To sell your life insurance policy in this way, the market value of the policy needs to be established. The formula for determining this value may vary depending on the company. 

Windsor Life Settlements provides a life settlement calculator so you can quickly get an idea of your policy’s worth. You will add a few policy details. The calculator can determine the value of your policy with just a few details about the policy. 

If you’re over age 70, it’s likely that your dependents and beneficiaries are older as well. Most people selling a life insurance policy have a need for cash now such as medical bills, funding retirement plans.  Some will even pursue this option just to give cash and gifts to their beneficiaries while still alive to see it. While concern over what would happen to them if you were gone will be much less now. If qualified you can sell the policy directly or hire a broker to survey the market in a bidding process. The bottom line is the money you put into that policy can be accessed now rather than later.