Sale Of A Life Insurance Policy - Frequently Asked Questions

Many life insurance policies have “cash value” - an accumulation of money in the policy that you can borrow against. When you borrow the money, you receive 100 cents on the dollar versus a sale of the same amount where you will receive less than 100 cents for each dollar.

Once you take the cash value, you can sell the rest of the death benefit.

Since obtaining cash value is considered a loan against the policy, if you remove all or part of the cash value, a purchaser will simply deduct from an offer they make an amount equal to the loan plus an amount for interest. The interest reflects the fact that a withdrawal from the cash value causes interest to accumulate until the “loan” is repaid. Rather than wait for the death of the insured and allow the insurance company to deduct the cash value loan amount from the net death benefit, purchasers will generally pay back the “loan” to avoid the accrued interest charges that would otherwise continue to accumulate.

If your finances are such that you don’t want to wait the amount of time it takes for a sale to occur, taking a loan against the policy can be a means of obtaining money right away, while waiting for the sale of the policy to take place.

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