Selling your life insurance policy means that in exchange for your policy, you get a lump sum of cash that you can use in any way that you see fit. There are many reasons for a person to sell their life insurance. For one, if a person is expected to die soon, they can sell their insurance to their offspring or partner so that they have money to take care of themselves.


Image Credit: Viatical.org

However, to sell term life insurance policy is not without its downsides as well, and it doesn’t just include losing your life insurance. There are many people who greatly benefit from selling their life insurance policy, but there are others who will not. Here are all the possible negative aspects that come with selling your life insurance policy.

Creditors will receive the benefits

Selling your life insurance means that you will no longer be receiving benefits that the policy offers. If you are one of those people who owe significant medical bills and have a large amount of debt that you need to pay off, the funds from the life settlement will be subject to being seized so that those debts can be repaid. People who still have large amounts of debt to pay off should diligently think about selling their life insurance policy and understand whether or not doing so is the right decision. Unless, the purpose of selling the life insurance is to pay the debt off in full in one fell swoop, keeping the life insurance policy also might be a better idea if it can still help you pay off some of your debt first.

Heirs don’t receive money

By continuing to pay the monthly premiums, and not choosing to sell term life insurance policy, your heirs will receive a large sum of cash as explained in the policy. By choosing to sell the policy to an insurance provider, that provider will instead receive the benefits once you have passed away. Sure, the point of selling your policy is to receive money, but the money that your beneficiaries will receive might be greater than the money that you sold the policy for. If your family is self-sufficient, or you have no heirs to give your money too, then selling your life insurance policy should not be that concerning; sell your policy now and use the money for what you need to.

You might not die soon, after all

When people choose to sell their life insurance policies, they do so with the expectation that they will soon pass on & the funds that they receive will be enough to last until the end of their lives. However, that isn’t always what happens. There is always the chance that you don’t end up dying when you are expected to, and thus, you end up outliving the money that you receive from selling your life insurance. This too is another possibility that might work against you financially, albeit your life would still go on.

Taxes will get involved

Taxes can work with for your favor as well as against your favor. If you receive more money than you need to pay for your premiums, that money can be taxable as income. The entire amount is not taxable, but that is considered a large benefit considering that it isn’t able to be taxed as capital gains. The downside is that if you stick with your life insurance policy and leave the money to be collected by your beneficiaries, these benefits, in most cases, cannot be taxed. This is another con to strongly consider.

Author's Bio: 

James Dean is a content handler and blogger who loves to write on the quality of topics like Commercial, Residential, and Financial recycling for their readers and followers. Dean has a fantastic ability to make the most complex subject matter easy to understand.