Selling an unwanted life insurance policy might be a better deal than letting it lapse. Suppose that your uncle, age 75, has a heart condition. He also has a $1 million life insurance policy he purchased years ago; he no longer needs the policy but he still has to make premium payments.
If your uncle lets the policy lapse, he’d receive the cash surrender value. If that value is around $75,000, in this example, he might wind up with around $60,000, after paying income tax.
As an alternative, your uncle could ask his life insurance agent to offer this policy to buyers. A savvy agent will be able to get several bids. A $1 million policy might be sold for $150,000. Even after paying income tax on the gain (the sales proceeds in excess of premiums paid) and paying a commission to the agent, your uncle would wind up ahead of where he’d be if he simply cashed in his policy.