Are you looking to sell your life insurance plan?
While it was once possible to sell your life insurance policy for a percentage of the policies value, this service is no longer available in Australia.
Selling life insurance work in the past
You may view your policy as a possible source of funds for when times are tough and you need additional resources to make ends meet. Selling life insurance was made possible with specific types of life cover plans that had a cash value component. Cash value life insurance policies built reserves through excess premiums and interest on earnings, which were held in the form of a savings account within the policy.
Life insurance policies with a cash value portion also allowed the policyholder to access the funds either through withdrawals, loans, partial or full surrender of the policy. The other alternative was to sell your life insurance for cash, also known as life settlement. However, it is important to note that permanent life insurance policies, such as whole life, variable life and universal life, are no longer available in Australia.
Is it possible to sell my term life insurance policy?
Today, it is no longer possible to sell your term life insurance in Australia. Although in the past, Australian senior citizens and retirees could opt to sell their term life insurance policy for up to 15% of the original value of the cover. The insurance company would then be the owner of the seller’s life insurance policy and be responsible for keeping on top of the premium payments. If the seller passed away, the insurer would then be eligible to receive the benefit amount.
Selling term life insurance policy was possible in the past as a result of increased competition in the market, however, due to growth in policy offerings and greater obtaining life insurance quotes online, this service is no longer offered.
Common reasons for people to consider selling their life insurance policy
There might be many different reasons for you to consider selling your life insurance policy, but some of the common reasons often include:
- You feel you can no longer afford the premiums payments
- You have accumulated enough assets and income streams to cover any financial obligations you may have
- Your children have moved out of home and are no longer financially dependent on you
- You have paid off your mortgage and other personal debt
If one of these reasons or any other reason has lead you to consider selling your life policy, it is important to assess your protection needs and carefully consider whether this was the best option for you in the future. Consider the long-term benefits that your term life insurance cover can provide for you and your financial dependents. Would you take the risk knowing that if anything should happen to you, your family’s future could be in jeopardy if there is no adequate financial protection in place? Will there be enough savings to pay for your funeral arrangement without causing financial stress to your loved ones?
What are the alternatives to selling your life insurance cover?
Changes in your personal circumstances warrant making adjustments to your life insurance, by increasing the level of cover to ensure that you and your family have adequate protection in place. But, what if your current situation does not allow much movement with your finances? Is there another way to keep your life insurance policy active even with some constraints on your monthly budget?
There a number of different alternatives that you may want to consider if you are thinking of selling your term life insurance policy:
1. Adjusting your existing life insurance policy
Instead of cancelling your policy right away because you can no longer afford the premiums, it is necessary to first review your life insurance plan. By reviewing your life insurance, you can make any adjustments necessary to keep your premiums affordable, and still maintain an adequate level of cover. There are a number of different areas to consider when reviewing your insurance policy:
- Cover amount: If you are in the later stages of your life, you may have reduced financial obligations as you have paid most of your debts and your children are no longer financially dependent on you. Therefore, you may want to consider decreasing your benefit amount, leaving just enough to cover any financial commitments and funeral expenses. In addition, since your benefit amount is indexed yearly to a minimum of 5%, you can submit a request to your insurer to pay less than the indexed premium rates. However, bear in mind that you cover will not keep up with inflation.
- Optional features: Some policy features will incur additional premiums, so you may want to assess which options can provide you with the most benefit, while keeping your premiums affordable.
- Lifestyle changes: If you are a smoker, why not consider quitting your habit for good? You pay almost double in premiums as a smoker compare to those who do not smoke. You may be eligible for a premium discount if you have quit smoking for at least 12 months. In addition, insurance providers often reward applicants who keep a healthy lifestyle with low premiums rates. So, if you are forced to pay higher premiums due certain health factors, such as obesity and high blood pressure, look into improving your overall health by maintaining a healthy diet and exercising.
2. Transferring your life insurance policy
Owning a life insurance policy inside your superannuation is affordable, however, you may be looking for more comprehensive plan with features and benefits that you can tailor to your needs without taking too much out of your budget. If this is the case, you may want to consider a superannuation rollover.
Superannuation rollover allows you to transfer the balance in your existing complying superannuation fund into a super plan owned by a life insurance company. The funds that you have invested into the new life account can then be used to keep on top of the premium payments of your life cover, total and permanent disability cover and income protection policies.
There are many benefits of rolling over your life insurance inside superannuation. These include:
- Access to greater range of features and benefits
- Flexibility to nominate larger amount of cover
- Less restrictions on policy options, such as benefit period, waiting period and payment frequency
- Options to link your life cover inside superannuation with other life insurance policies not available through super, such as trauma insurance and TPD cover with own occupation definition.
3. Cancel your existing policy and find a cheaper alternative
If you want to cancel your existing cover and find for a better deal on your life insurance policy, it is important to keep your current cover active until your new life insurance application has been accepted and put in place. This is to ensure that you are not leaving yourself and your family at risk while you are comparing competitive life insurance quotes.
Consider undertaking a medical exam if you are applying for a new life insurance policy to uncover any health conditions that you were not aware of. If you found that you have a pre-existing medical condition, not to worry as it does not automatically exclude you from being able to apply for a new cover. It just means that it becomes more important to ensure that you new life insurance policy fully covers you for this condition in the future and to establish that, you have to provide this information to your insurance provider. Your insurer will then determine the level of risk you carry and loadings that may be applicable.
With the help of an insurance adviser, you can go through this process much more efficiently and effectively, as they can find suitable policy options that match your needs and budget. They can also provide additional information on complex policy features and benefits, and provide assistance that you may require when applying for your new life insurance policy.