Chronic illness can help you qualify to sell an existing life insurance policy and can affect the amount a buyer offers. Buyers consider your current health alongside your age, policy terms and future premiums. For seniors arranging home care or assisted living, that makes an existing policy worth reviewing as part of the care budget.
Selling a policy is called a life settlement. You receive a payment, and the buyer becomes the new policy owner, takes over future premiums and receives the death benefit. Whether a sale makes sense also depends on the coverage your family still needs.
Why Health Affects a Policy’s Sale Value
A buyer has to pay to keep the policy in force. Health matters because it helps the buyer estimate how long those payments may continue. New Jersey’s Department of Banking and Insurance explains in its guidance on selling life insurance that keeping a policy longer than expected adds premium costs.
When a chronic condition shortens estimated life expectancy, a buyer may expect fewer years of premiums. That can support a higher offer than for an otherwise similar policy covering someone in better health. Individual results vary, and a diagnosis alone does not establish eligibility or value.
You do not have to be terminally ill to explore a sale. Older adults with ongoing health conditions may qualify, and age can make a policy worth reviewing even when an illness is stable.
What Medical Records Tell a Buyer
The same diagnosis can describe very different situations. Someone with lung disease may manage daily activities independently, while another person needs oxygen and frequent hospital care. A family helping a parent with memory loss may be arranging occasional reminders or daily supervision.
Underwriters use medical records to assess how an illness has progressed, how treatment is working and what the person can do independently. They also consider other health conditions. TwentyFirst, a life expectancy underwriting company, describes its estimates as drawing on medical records and factors including age, medical conditions and lifestyle.
The health conditions considered in a life settlement review include heart failure, COPD, Parkinson’s disease and dementia. What matters within each condition differs. Breathing tests and oxygen use may be relevant to lung disease; records about mobility and everyday assistance may help describe a neurological condition.
Families can help by identifying the doctors involved and any recent hospital stays. With the appropriate authorization, records can be requested for the review. An old diagnosis entry may need more recent information showing treatment response or a change in care needs. Include improvements as well as new limitations so the review reflects current health.
How Policy Costs Affect an Offer
Health information is only part of the evaluation. The buyer also looks at the death benefit, future premiums and how the coverage is structured. High ongoing costs can limit an offer even when the insured person has a serious illness.
Request a current in-force illustration from the insurer. This shows how the policy is projected to perform under stated assumptions, including the premiums needed to maintain coverage. Check any policy loans as well, since they affect the benefits available.
Term insurance deserves a separate check. Some term policies can be converted to permanent coverage within a specified period without a new health review. Ask about the conversion deadline and the new premium before changing anything. A possible sale should be evaluated before taking on the cost of a conversion.
Citizens Life Group a life settlement broker reviews health information and policy costs together when preparing eligible policies for competing offers from institutional buyers. Offers should be compared using the same current policy information.
Check the Benefits Already in Your Policy
An existing policy may offer help with care expenses without a sale. Ask the insurer whether it contains a chronic illness or long-term care rider, an accelerated death benefit, or a waiver of premium provision. Each benefit has its own requirements.
For example, a chronic illness rider may require documented help with daily activities or supervision because of cognitive impairment. The National Association of Insurance Commissioners explains that a long-term care rider may also restrict eligible expenses or include a waiting period.
These contract requirements are separate from a buyer’s review of a policy for sale. Having a chronic diagnosis does not automatically activate a rider, and being ineligible for a rider does not settle whether a buyer would make an offer.
Ask for the amount the insurer would actually pay and what would happen to the remaining coverage and premiums. A cash-value loan may be another option, but unpaid loans and interest reduce the remaining death benefit and can put coverage at risk if the debt grows too large. Get written figures so the family can compare the available choices.
Compare the Offer With the Care You Need
Start with the services being considered. New LifeStyles’ overview of senior living and care options can help families distinguish home care, assisted living and settings that provide more support. Obtain a written cost estimate from the providers you are considering, including additional charges for the help your family member needs.
Compare that budget with the amount available from a sale after disclosed fees and any applicable taxes. Also consider the premiums the household would no longer pay. Estimate how long the proceeds would last at current care costs, allowing room for expenses to change.
Discuss who still depends on the policy’s death benefit before choosing a full sale. The NAIC also advises checking how settlement proceeds could affect public assistance such as Medicaid. Consult a tax professional about the sale and a qualified benefits adviser if public assistance is part of the care plan.
Gather the Information for a Review
To start, have the policy number and insurer’s name available, along with:
- The latest policy statement and premium notice.
- A current in-force illustration and any loan balance.
- The names of treating doctors and dates of recent hospital care.
- Copies of any rider-benefit information the insurer has provided.
- The family’s current care-cost estimate.
Keep the policy in force while you explore the options. If a premium is becoming difficult to pay, ask the insurer for the payment deadline and available options in writing before stopping payments.