How Much is My Life Insurance Policy Worth?

Posted by Your Life Insurance Solution on March 2nd, 2020

At some point, especially if you own a whole life policy, you may ask how much your life insurance policy is worth. It matters if you are looking to create a financial plan. You’d want to know if anyone would buy it from you, or if it’s a wise idea to sell it.

Several variables give a good idea of a life insurance policy's fair market value. But, most people find it difficult to calculate these variables. A tax or accounting professional with the appropriate experience can help you determine the true worth of your policy.

“Fair market value” is the price that a willing buyer offers a willing seller for a given commodity.

Why Should I Know the Value of My Policy? If you know how much your policy is currently worth, you can use that for planning your estate. It becomes more critical if your total assets surpass your credit limit for the year.

The monetary value of your policy tells if you will owe gift tax on the sale of your policy. If you plan to sell your life insurance to a qualified buyer, you need to know the precise worth of your policy. It will define what a good deal is for you.

Making Money From Your Policy There are a few ways to go about selling life insurance policy for cash, even without determining the fair market value. These include:

1. Withdrawing the cash value

You can take the current cash value from a policy, without canceling the policy or taking a loan. If the policy is relatively new, you’ll pay a surrender charge.

2. Using the loan provision

It’s possible to get a loan from your policy out of your accumulated cash value. It comes with interest, but you’re essentially paying yourself. Small loan amounts are the best.

3. Cashing out your policy

You can tell your insurer you no longer want coverage and stop paying your premium. It attracts surrender charges and other costs, including tax, if the amount exceeds the total premiums you’ve paid so far.

Still, there’s a fourth viable option.

Exploring Life Settlements This option helps you get a far better rate of return when you cash in life insurance. The previous three methods are not as effective as life settlements.

Life settlement brokers buy life insurance policies if you no longer need or want coverage. They don't mind if the policyholder only wants more cash than a surrender, loan, or withdrawal can provide. The broker continues to pay the premium on the policy but earns the benefit when you die.

Conclusion More people are using life settlements to dispose of insurance coverage they no longer need. They offer up two to three times what a policy loan or withdrawal would offer. Most importantly, they provide the cash you may need urgently.