If you have a life insurance policy you no longer need, you may be able to sell it for significantly more than its cash surrender value (CSV).

A life settlement is the sale of a life insurance policy to a third party. The sale can provide the policy holder with more than the CSV and even more than the premiums paid over the life of the policy.

Life insurance settlement companies buy policies and then continue paying the premium with the expectation that they’ll collect the death benefit. That means these companies typically purchase policies from people who have life expectancies of up to 15 years and death benefits of at least $100,000.

A life settlement may be an option when someone no longer needs the coverage for their intended plan. For example:

• The policy was meant to provide death benefits to someone who predeceased the policy holder.
• It was intended to pay estate taxes, but the policy holder’s estate plans have changed.
• Coverage was meant to fund a business owner’s buy-sell agreement, and now the business has been sold.
• The premiums are no longer affordable.
• The individual has immediate financial needs.

These settlement arrangements are available in all states, and any policy type may qualify. However, buyers generally prefer universal life, guaranteed universal life, and those with return of premium riders. There’s greater value in policies that won’t increase in cost.

The least attractive are whole life policies. These high cash value policies typically have higher maintenance costs and lower death benefits.

Buyers will also be looking at the insurance company issuer rating. Established, active firms with a rating of “A” or better are preferred.

Getting started.

Find a broker or request a policy appraisal from a life settlement company. You’ll need to provide policy details and access to your medical records. Appraisals are free but you incur expenses for the medical records. Seek out multiple offers, as bids can vary widely from one company to the next.

Seek professional advice.

If you do receive an offer to purchase, you are under no obligation to accept. However, you should consult with an estate planning attorney before you move forward. Typically, you will not owe taxes on the amount you receive, but it’s best to review your plans with a specialized advisor in your state.

If you’re selling a policy for reasons of financial need, consider the alternatives and weigh the best option for you and your survivors. Depending on the type of policy, you may be able to accelerate the terms and collect while you’re still alive.