The financial realm for selling your life insurance policy is known as the Traded Endowment Policy, or Traded Life Policy (TEPs and TLPs) markets. Many people are offered a surrender fee for their assured lump sum before their term has ended, but it might be more financially smart if you sold your policy. Second hand policies are purchased with the intention of selling them as low risk investments.
In the US this is a billion dollar market but here in the UK it is still niche and relatively nascent. There are companies set up in the UK that will buy life insurance policies from people who are terminally ill and have three years or less to live.
But why would you want to sell your life insurance policy if you were very ill and had less than three years to live? Typically, the people selling their policies never settled down and had a family; they have no beneficiaries to leave their life insurance pay-out to who would desperately need it if they died. Instead they cash in their policy and spend the money in the remaining years of their life.
Which is why life insurance acquisition charity Life Benefit Resources insist that you do not have any children still financially dependent on you before they buy your policy. Before you sell your policy you may also need to take into consideration whether the additional income from selling your policy will not push you into a higher tax bracket or affect inheritance tax.
When you take out a life insurance policy you can put the sum assured in trust so that it does not affect the value of your estate if you are currently below the inheritance tax threshold in the UK of £325,000. Releasing the value of your life insurance from trust may push your estate over the nil rate band meaning any beneficiaries will be subject to the 40% inheritance tax bill. Then again, if you have sold your life insurance policy, you probably aren’t worried about your beneficiaries.
Aside from selling your assured sum to an acquisitions company you can also trade your life insurance policy in the UK for a discounted rate to a private investor. Someone can trade their assured sum to a buyer for 30-40% of its value and make the buyer the beneficiary. It’s a high risk investment with term cover and not whole of life where there is a guaranteed payment. Essentially, the investor is betting on the likelihood that the person trading their assured sum to them will die within their policy terms.
The UK has seen its first established Traded Life Policy fund that invests in US policies only on a dollar basis. The fund allows investors to buy guaranteed, high value pay-outs that are independent from market volatility. The funds return performance is rather morbidly based on peoples life expectancy following a terminal illness diagnosis.
If you are willing to bet on another person’s life or you need a large sum of money fast, then Traded Life Policies could be for you. However, if you are the person selling then there are a number of financial implications you need to consider for you and your loved ones.
Thank-fully though, in recent years, there is an insurance product that could make TLP’s defunct – critical illness cover.
Critical Illness Cover is a life insurance bolt on that will pay-out the whole of your assured sum if you fall terminally or critically ill (each insurer has a different list of what constitutes as a critical illness.) The extra cost on your premiums each month is likely to add up to a lot less than the cost of selling or trading your life insurance policy to investors. Not only is critical illness cover likely to be cheaper and save you money but it also feels a little less like selling your soul to the devil.
For more information on critical illness cover, give QQL a call and we will talk you though adding it to your life insurance policy.