How Much is my Life Insurance Policy Worth? - Uplife Finance

Life insurance is an essential part of many family’s retirement and financial plans. If you have a life insurance policy, you are not alone – 60% of Americans carry some form of life insurance coverage. If you have children or are married, you probably already have a life insurance policy or two – perhaps through your employer, bank, or credit union.

Buying a life insurance policy is a smart investment, and you may be wondering what your investment is worth. The answer depends on many factors, like what type of policy you own and how long you have owned it. Even if you are not considering selling your life insurance policy, you may still need to know its value for estate planning and tax purposes.

Read on to learn more about how much your life insurance policy may be worth and how to find out its value. Then reach out to the experts at Uplife Finanace to learn more.

Why Should you Determine Your Life Insurance Policy Worth?

There are several good reasons you may want to determine your life insurance policy’s present value. The most obvious reason would be if you planned to sell this asset – any buyer would require a sound valuation of your life insurance policy to know if it is a smart investment for them. Having valued your policy, you will also know if the price you are offered is sufficient for your policy’s value.

But even if you are not interested in selling your life insurance policy right now, you may still want to know its worth. This helps estate planning and tax planning purposes and may carry investment portfolio implications depending on your tax classification. And if you decide to sell in the future, you will already have an idea of its worth.

Because determining the value can be a complicated process, you may wish to engage the help of your financial advisor or other experts.

Determining the Value of a Life Insurance Policy

Many different valuation factors are essential when determining the value of a life insurance policy.

Type of Policy – The type of life insurance policy you own is an essential factor in determining whether to sell it and its worth. If your policy is a term policy, it does not accrue cash value, so you probably do not want to sell it. If, however, you own a universal, whole, or variable life insurance policy, you should consider the investment earnings to understand the policy’s value potential. If the investments have been performing well – earning dividends and growing with a solid interest rate – then your life insurance policy may be worth more. If the investment earnings potential is low, as evidenced by the policy’s past performance, then the value may be lower because of this.
Age of Policy/Premiums Paid to Date – The total value of premiums you have paid to date for your life insurance policy will be considered. Having owned your policy for a more extended amount of time usually means you have paid more in premiums, which could, in turn, increase its value.
Health of Policyholder – Life insurance policy payouts are dependent on the health, age, and life expectancy of the insured person, so if your health has deteriorated since you purchased your policy, it may have more value. Being older at the time of sale also increases its value since your life expectancy is less than it was at the time of your initial purchase.
Face Value – The face value, or face amount, of an insurance policy simply means the policy’s stated dollar amount. It is generally the same as the death benefit of the policy. For example, if you have purchased a life insurance policy with a $1 million face value, the death benefit is usually also $1 million. A life insurance policy with a greater face value will have a greater worth than one with a lower face value.
Cash Value – The cash value that has accrued on the policy is an essential factor to consider when determining the worth of the policy. Cash value accrues differently depending on the type of life insurance policy you have, so your actual cash value could vary greatly depending on the method of accrual and investment gains or losses.
Loans or Withdrawals to Policy – If you have already taken advantage of any loans or cash withdrawals from your life insurance policy, this may affect its value as some of the benefits have already been paid.

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Determining the Value to Sell Your Life Insurance Policy

Selling your life insurance policy often happens through a process called a life settlement. Life settlements are the sale of your life insurance policy in exchange for an immediate lump sum payment. The payment amount you receive will be less than your policy’s face value, but more than the surrender value.

Life settlements can be a good solution for insureds who want to sell their life insurance policy. Policyholders may qualify for life settlements if they are aged 65 or older and their life insurance policy has a face value of $100,000 or greater.

A special type of life settlement is known as a viatical settlement – this type of settlement requires the insured person to be terminally or chronically ill to qualify. There is no age requirement with a viatical settlement.

Advantages and Disadvantages to Selling your Life Insurance Policy

Suppose you are interested in determining the value of your life insurance policy so you may sell it. In that case, there are some advantages and disadvantages of the sale you should consider first.

Advantages

You can use the lump-sum sale payment to handle other financial needs you may currently have
Selling your policy frees up capital you were previously spending on the life insurance policy premiums for other needs
You can upgrade your level of care in retirement if you need medical or assisted living help through the proceeds from the sale
You can pay off a debt that is holding back your financial future

Disadvantages

You lose all of the benefits of the policy – ongoing dividends or cash accruals as well as the eventual death benefit that would be paid to a beneficiary
Your family or beneficiary may be relying on the funds from the policy in the future
Cash payments are considered income and could affect taxes and eligibility status for need-based programs like Medicaid
Transaction costs or broker commissions may apply to your sale

Other Options

You may decide that selling your life insurance policy is not the right decision for you. But you may still need an immediate influx of cash to help your current situation. Your life insurance policy may still be able to help you out.

Taking a Cash Value Withdrawal – You may be able to take a cash-value withdrawal from your life insurance policy by simply calling your insurance company to ask. They may have different terms and conditions that apply. Be aware that taking a cash withdrawal may increase your monthly premiums or decrease the policy’s future benefit amount, or both. You should consider if cash withdrawals are the right option for you. Cash withdrawals may be subject to taxes.

Taking a Loan From Your Policy With Cash Value as Collateral – If your policy has accrued cash value, you may be able to take a loan from the cash value. You will need to pay the interest on it, but you do not need to repay the loan – the loan amount simply reduces the amount of cash value available on your life insurance policy. The interest may cause your monthly payments to increase more than you are comfortable with; however, the interest will reduce the death benefit if not paid off.

Surrendering Your Policy – You can always elect to surrender your life insurance policy – you can do this by notifying your insurance company that you would like to cancel your policy. They will pay you for any accumulated cash value the policy has at the time it is closed. Be cautious, though, because you may be charged a high penalty through a surrender charge fee if you have not owned your policy for long. Surrendering your policy means terminating it, so your beneficiary would lose the policy benefit when you pass away, and you would lose any additional policy benefits it pays during the policy period, such as dividend payments.

How to Sell Your Life Insurance Policy

If you have determined the value of your life insurance policy and have decided the right choice for you is to sell it, you may be wondering how to do that. The process is straightforward once you have made your decision. Transactions may take several months, however, from application to approval.

Your first step is to contact a life settlement provider and complete an application and medical release. Information is collected and reviewed for underwriting; then, a detailed offer is made. You may decide to accept or decline the offer – it is up to you. If you accept the offer, you will be scheduled for closing and issued payment via check or direct deposit once the insurance company processes the change of ownership and beneficiary.

Final Thoughts

There are many sound financial reasons you may need to know how much your life insurance policy is worth. Whether you are looking to sell a policy you no longer need or are interested in determining the value of your policies for tax and estate planning reasons, valuing your life insurance policy can be an essential part of your financial and retirement planning process.

While it can be complex, understanding a few key things about your policy will help. Knowing what type of policy you own, its face value and its accrued cash value, and how much you have paid in premiums throughout the policy are all helpful figures to have when determining your life insurance policy’s worth.

Researching your policy and working with experts to help you find its value is an important financial move.

How do I Learn More?

To learn more about how much your life insurance policy is worth, contact the experts today at Uplife Finance. Our licensed professionals will be happy to answer any questions you have.

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FAQ

Why is it Important to Know how Much my Life Insurance Policy is Worth?

Knowing the value of your life insurance policy is essential:

If you are considering selling your policy now or in the future
For estate planning
For tax planning

What Types of Life Insurance Policy may I Sell?

You might consider selling your universal, whole, or variable life insurance policy
If your life insurance policy is a term policy, it does not any have accrued cash value, and so it would probably not be financially viable to sell

You might consider selling your universal, whole, or variable life insurance policy If your life insurance policy is a term policy, it does not any have accrued cash value, and so it would probably not be financially viable to sell

If you decide you no longer want a life insurance policy you have purchased but do not want to sell it, there are other options
You can elect to surrender the policy for its cash surrender value
You can withdraw its cash value
Each of these options has its risks, pros, and cons to consider carefully and discuss with your advisor

Are There Disadvantages to Selling my Life Insurance Policy?

There could be disadvantages depending on your situation
You may face tax consequences from the sale
You and your beneficiary lose all the benefits of your life insurance policy
There may be costs associated with the sale

How do I Sell my Life Insurance Policy?

Contact a Life Settlement Provider to help guide you through the process
Complete an application and sign medical releases
Accept or decline the offer when it is made
Sign the paperwork to change the beneficiary and policy owner
Cash your check and enjoy the funds from the proceeds

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