If you’re looking for an affordable option for life coverage, short-term insurance may be the optimal solution for you.
This form of insurance is typically the most affordable option, offering coverage for a specified period. With a short-term policy in place, you’ll be sure that your family is protected while you are still paying off your mortgage or when the kids are still young.
But what happens when you no longer want your short-term life insurance policy? Can you sell it? —the answer is YES.
For this TRU Insight, we’ll explore short-term insurance, how you can sell it, and alternatives cashing out that you may want to consider. By the end of your reading, you can figure out how to determine the policy’s value and whether selling it is a good choice.
Overview
- Short-term insurance (also known as term life insurance) offers coverage for a specific period, typically within 30 years.
- Unlike whole life insurance, short-term life insurance does not have a cash value component added to the death benefit that your beneficiaries can get.
- You cannot cash out term life insurance. What you can do instead is sell it through third-party companies by a process called life insurance settlement.
- If you want to change coverage and not sell your term life insurance, you can choose to lower your premiums or convert to a permanent insurance policy.
What is Short-Term Insurance?
Also known as term life insurance, short-term insurance covers only a particular period, unlike life insurance that’s valid throughout your lifetime. Ultimately, it guarantees that your loved ones are financially protected in any case of you passing away.
You can typically buy term policies that last up to 30 years or until you reach a specified age. The shortest-term policy available is a one-year policy.
According to the Insurance Information Institute, you cannot purchase short-term insurance for a term that ends past your 80th birthday.
When a term life insurance policy expires, and you are still around, your loved ones will receive no benefits. The options you can do at the end of the policy are to either adjust the coverage level, convert it to a permanent life insurance policy, or cancel the policy altogether.
Can You Cash Term Life Insurance?
The difference between short-term and long-term insurance (also known as whole life insurance) is that you can’t cash out term life insurance.
Term life insurance does not come with cash value. The policy only includes a death benefit that your beneficiaries can receive if you pass away before the end of the policy’s term.
Conversely, permanent life insurance, like universal life insurance or whole life insurance, comes with a cash value account added to the death benefit. For this reason, you can cash out a long-term policy while you are still alive.
Can You Sell a Short-Term Insurance Policy?
While you may not be able to cash out term life insurance, the good news is that you can sell it.
One way to sell your short-term policy is through a process known as a life insurance settlement. This process involves selling the policy to a third-party company.
Among the factors to consider when selling your policy to these companies include:
- The insurance company chosen
- The coverage amount you have
- Whether your policy is convertible
Note that when it comes to life insurance settlements, you’ll sell your policy for a lesser amount than the death benefit.
Ways to Sell Your Term Life Policy
Here are some basic steps you can take to sell your short-term insurance policy:
Find a Reputable Broker
Since you will be sharing information and documents regarding your policy with a broker, it’s important to only communicate with a trustworthy broker.
The insurance agent will inform you whether it is feasible to sell the policy.
Make the Sale
The broker will conduct their research and match you with a buyer who is likely to take over your policy. Expect that the buyer will pay the price you agreed on and make the premium payments on your behalf.
Once you have passed away, the buyer will receive the death benefit payout.
Alternatives to Selling Short-Term Insurance
If there is a term life insurance policy that you cannot cash out, but you don’t want to sell it, consider these three alternatives:
Adjust Your Coverage
Several life insurance companies are willing to assist you if your premiums are no longer affordable. If the life insurance company you choose allows it, you can have more affordable premiums and lower your coverage level.
Choose this option if you are struggling to pay your premiums or if the coverage is too long for you.
Convert to a Permanent Life Insurance
For you to build cash value, you could convert your short-term life insurance policy to whole life insurance or any other type of permanent policy.
The cons of going for this alternative is that your premium amounts will increase.
Cancel Your Short-Term Insurance Policy
Canceling your term life insurance policy or letting it lapse will cause you not to receive any benefits.
Going this route, however, can free you from your premium payments and help you make more room in your budget.
Is Short-Term Life Insurance Worth It?
Short-term insurance can be helpful when you’re looking for affordable coverage to protect your family when financial aid is needed the most. Some situations that apply to term insurance are when you’re still paying off your mortgage or when your children are still at home.
Term life might not be useful when you’re older and you paid off your major expenses (i.e., children’s tuition fees, mortgage, car). It may also not make sense if you are trying to use life insurance to build your wealth, like how you can with long-term life insurance policies.
Learn More About Life Insurance Policies With CommuniTrade
Selling your short-term insurance is a good move if the policy is no longer affordable or needed. However, it is essential to find a reliable source that can help you determine whether to sell the policy or to whom to sell it.
CommuniTrade is an online community that can smoothen your learning about life insurance. We provide a safe space for you to share personal experiences or questions about various topics concerning your financial wealth.
Join millions of experts in a community that cares about you and your financial goals.
FAQs
How do I determine whether my term short-term insurance is convertible?
The conversion rider enables you to convert your short-term life insurance into a long-term one. If you choose to add it to your policy upon signing in, you should exercise the conversion privilege before the policy’s expiration date. Additionally, you should convert your short-term insurance before you turn 65 or 70 years old.
Do I get my money back if I cancel my short-term life insurance?
By law, canceling a term life insurance policy within 30 days of purchase would require the company to refund any amount you paid. Additionally, if you paid some of your premiums in advance and then canceled your policy, the company must return those pre-payments.
Can I cash out my short-term life insurance before I die?
Short-term insurance covers you for a specific period (e.g., 10, 15, or 20 years) and then ends. Since the number of years covered is limited, it generally costs less than long-term policies.
However, short-term life policies usually don’t build cash value, so you cannot cash out this type of life insurance.
Get the Most Out of Your Short-Term Insurance Policy
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