If you (or your parents) have a life insurance policy you no longer need, you might be able to sell it to an investor who’ll keep it in force. On such a sale, the proceeds might be greater than the amount the insurance company would pay if the policy were surrendered.
Such a sale is known as a life settlement. The sellers likely to do best are at least 65 years old, with a health condition that shortens their life expectancy.
Suppose, for example, Bob Smith has a $250,000 policy on his life. He has had a heart attack and his life expectancy is less than five years. If he sells the policy, he might get $150,000 (60 percent of the eventual death benefit). The buyers (usually a group of investors) expect to get back $250,000 in a few years.
However, if Bob’s heath is better and he has a 20-year life expectancy, he might be offered only $25,000 or $30,000 for a $250,000 policy.
