One of the most frequently asked questions is, if it is possible to sell life insurance policy in Australia when you no longer want it?
This question is relevant because in Canada for instance, it is only legal to sell your life insurance policy in four Canadian provinces. Looking at the empirical evidence in the United States and Canada, there’s no indication that selling your life insurance will become easier in the future.
A life settlement is a process of selling your life insurance to a third-party if you think that you no longer need it. This is because there are times you may have to rethink your life insurance needs.
But beyond that, let’s talk about what life insurance policy is, how life insurance works, exactly how to sell your life insurance and the advantages and disadvantages of selling your life insurance.
What is life insurance and why do you need it?
Life insurance policy is a type of policy that pays the beneficiary a death benefit after the death of the policyholder or after a set period of time. The importance of buying life insurance today is that it helps your dependants not to suffer financially when you are dead.
They won’t have to bother where to raise money for your funeral nor how to take care of your debt because your death claims will sort them out.
However, if for any reason you don’t want your life insurance policy any more, you can sell it to a third-party but at a price that is actually less than the worth.
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When should I sell my life insurance policy?
Policyholders in Australia decide to sell their insurance for any of the following reasons:
- When you can no longer afford paying your insurance premium.
- You can choose to sell your life insurance policy when you’ve built enough savings and assets that can take care of your family and personal debts after your death.
- When you no longer have financial dependents and you’ve paid off your mortgage.
- You want to channel the proceeds into a profitable business that is guaranteed to succeed.
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What does the process of selling your life insurance look like in Australia?
Before we discuss what the process of selling life insurance to a third-party looks like, please understand that immediately you sell your life insurance, the new policyholder begins paying for the premiums. As a result, they will become entitled to all the death benefits when you die (not when they die).
Considering how delicate this business transaction is, you might need to hire a life insurance broker to help you sell your life insurance policy. If your insurer hardly buys back policy, then you will need to keep searching for a buyer – which is often hard to come by, including the legal implications.
Once the new policyholder takes over paying the premiums, always check in to remind them that you are still alive so that they will continue to renew their premium.
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The step-by-step guide to selling your life insurance policy in Australia
If you’re still interested in proceeding with the life settlement, here are steps to selling your life insurance to a new policyholder in Australia:
1. Double-check your state’s insurance laws and insurer’s guidelines
Your state’s insurance laws or life insurance company’s mode of operations may impose rules as to when and whether you can sell your policy. It’s always good you find out from the beginning. For example, you may need to be over 65, or have a policy worth at least $100,000. Only 4 provinces in Canada allows you to sell your life insurance
2. Find a reliable buyer
If you’re looking to bypass brokerage fees, you can either find a buyer or opt for a life settlement provider to connect you with potential buyers. Trying to bypass brokerage fees can make your chances of finding a buyer much harder. It’s a serious financial risk so they need to be sure they are making the right decision.
3. Get your policy appraised
Your insurer may do this for free, while a life settlement broker may expect you to use their brokerage services that come at an affordable fee. It all depends on how fast you want it and how much you think it will be worth so that you don’t get ripped off.
4. Compare different offers
Don’t jump and sell immediately you get the first offer. Wait for a competitive offer before selling. Like they say in business, patience is a great virtue. You may need to observe when the life insurance policy is at an all-time high and liquidate yours at a very profitable price.
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