How much can I get for selling my life insurance policy?

It depends on life expectancy, the premiums needed to keep the policy in force, and the policy itself. The Texas Department of Insurance states that sale amounts typically range from 10 percent to 75 percent of the death benefit. That is one state regulator's figure rather than a national average. An offer should exceed the policy's cash surrender value, since that amount is available from the insurer without selling.

Will a life settlement affect Medicaid or other benefits?

It can. NAIC consumer guidance tells sellers to find out whether they will lose public assistance benefits such as food stamps or Medicaid if they receive a cash settlement, and this disclosure is required under the model act. The proceeds may also be claimed by creditors. Consult a benefits counselor before selling.

Life settlements

Q: Do I pay tax on life settlement proceeds?

Generally yes on the gain. Gain is the sale price minus basis, which after the Tax Cuts and Jobs Act of 2017 is generally the premiums paid, without reduction for the cost of insurance. Gain is treated as ordinary income up to the policy's inside build-up, and any excess may qualify as capital gain. The exception is a sale by a terminally ill individual to a licensed viatical settlement provider, which is generally free of income tax.

Q: Can I cancel a life settlement after signing?

There is a rescission period, but its length varies by state and there is no single national figure. The NAIC model act provides a right to rescind before the earlier of sixty calendar days after the contract is executed by all parties or thirty calendar days after proceeds are sent. New York provides from signing until fifteen days after the seller receives the proceeds. Rescission generally requires returning the proceeds and premiums.

Q: How often will the buyer contact me after a life settlement?

The buyer verifies that the insured is living. Under the NAIC model act, contact is limited to no more often than once every three months where the insured's life expectancy is more than one year, and no more than once a month where it is one year or less. Medical, financial and personal information may be disclosed as necessary to effect the settlement, and permission to share information may need to be renewed every two years.

Selling a life insurance policy you already own

Advanced reading, and not advice. This is educational content, not tax, legal, or financial advice. Rules here vary by state in ways that matter, and the tax treatment turns on facts a web page can't know. Check with your state insurance department and your own advisers before selling anything.

The short version

A life settlement is the sale of a life insurance policy to a third party for cash. You get more than you'd get by cashing the policy in, less than the death benefit, and the buyer takes over the premiums and collects when you die. It's legal, it's regulated state by state, and for some people it's the best of a set of bad options. It's also a market with real hazards, and the alternatives are worth exhausting first.

What it actually is

The National Association of Insurance Commissioners, the body the state insurance departments run jointly, describes it this way: a life settlement is the sale of a life insurance policy to a third party. The owner sells it for a cash payment less than the full death benefit. The buyer becomes the new owner or beneficiary, pays all future premiums, and collects the full death benefit when the insured dies.

The financial regulator FINRA adds the boundaries: payments are generally more than the policy's cash surrender value, and less than the net death benefit after unpaid premiums, outstanding loans and withdrawals.

So the money sits between two numbers you already have. That's the pitch, and it's a real one. For an older policy you no longer need, "more than surrender value" can be meaningful.

Life settlement or viatical settlement

The two words describe the same transaction with different sellers.

A viatical settlement is when someone with a terminal or chronic illness sells their policy. A life settlement is when someone who is not terminally or chronically ill sells a policy for other reasons. That distinction changes the tax treatment completely, as you'll see below.

In the model law most states work from, "terminally ill" means an illness that can reasonably be expected to result in death in twenty-four months or less.

Who's who in the transaction

The two licensed roles, in the regulators' own terms.
Role	What they do	Who pays them
Settlement provider	The person or company that becomes the new policy owner, pays any premiums due, and eventually collects the death benefit. The buyer.	Nobody. They're spending, not earning a fee.
Settlement broker	Represents the seller of the policy and can comparison shop among providers.	The buyer pays the broker a commission if the sale completes.

In the second row, your broker works for you and is paid by the other side. That's not automatically a problem, and the law addresses it directly, but it's a fact to hold onto.

Not the same as two things it gets confused with

A settlement comes from a third party. Two things that come from your own insurance company look similar and are not:

Surrendering the policy means cashing it in with your insurer for its cash surrender value.
An accelerated death benefit is your own insurer paying part of your death benefit early because you're ill. The model law is explicit that a policy loan or an accelerated death benefit made by the insurer under the policy's terms is not a settlement contract. We cover these on the rules and riders page.

Who regulates this

State insurance departments do. FINRA states the practical consequence: while the majority of states regulate life settlements, not all life settlement transactions are regulated, and it's important to research the purchasers to see if they're regulated and required to be licensed.

Under the model law, a person may not operate as a settlement provider or a settlement broker without first obtaining a license from the commissioner of the state where the seller lives. Most states have adopted a version of it. Several have not, and several adopted only parts. That's why the first call is to your own state's insurance department rather than to anything you read here.

Your broker owes you a duty

This is the strongest protection in the model law. A settlement broker "is deemed to represent only the viator, and not the insurer or the viatical settlement provider, and owes a fiduciary duty to the viator to act according to the viator's instructions and in the best interest of the viator." New York's regulator puts the same point to consumers plainly: the broker represents exclusively you and has the duty to act in your best interests.

A fiduciary duty is the highest standard in this area. It means your interests come ahead of theirs. Ask, in writing, whether the person you're dealing with is acting as your broker or as the buyer's provider. Those are different jobs.

You can change your mind, but the window varies

Every version of this law gives you a period to unwind the sale. The lengths are genuinely different from state to state, so there is no national number to remember.

The model law gives an absolute right to rescind before the earlier of sixty calendar days after the contract is executed by all parties, or thirty calendar days after the proceeds have been sent to you. New York runs on a different clock: from the time the contract is signed until fifteen days after you receive the proceeds.

Rescinding generally means giving back the proceeds and the premiums. And if the insured dies during the rescission window, the contract is deemed to have been rescinded.

Find your own state's number before you sign, not after.

What they have to tell you

The model law requires a written, signed disclosure at application covering the alternatives including accelerated death benefits and policy loans, the broker's duty, the tax treatment, creditor exposure, the effect on public assistance, and your rescission rights. It also requires disclosure of the amount and method of calculating the broker's compensation.

On privacy, it requires this in substance: all medical, financial or personal information obtained may be disclosed as necessary to effect the settlement, and you may be asked to renew your permission to share information every two years.

Who buyers are looking for

Texas's insurance department is the most direct regulator we found on this. It states that most settlement providers won't buy a policy unless you're 65 or older or have a terminal illness, and that providers weigh your life expectancy, with a shorter one producing a higher offer, and your policy premiums, with lower ones producing a higher offer.

The logic explains the market. The buyer's return improves the sooner you die and the less they have to pay to keep the policy going. That isn't a scandal, just the math, but it tells you what you're selling into.

On what you might receive, Texas's department says sale amounts typically range from 10 percent to 75 percent of a policy's death benefit. That's one state regulator's statement, not a national average, and the spread inside it is enormous. Treat it as a range of outcomes, not a forecast.

We found no regulator stating a minimum policy size, so we're not going to invent one. Ask.

The tax treatment

This changed, and anything written before 2018 on the subject is wrong. Two things happened: the Tax Cuts and Jobs Act of 2017 simplified how your investment in the policy is measured, and in 2020 the Internal Revenue Service restated its rulings to match.

The starting point: what counts as your investment

Basis is your investment in the policy for tax purposes. It's what gets subtracted from the sale price to work out your taxable gain.

Before the 2017 law, the tax authorities took the position that your basis had to be reduced by the cost of insurance you'd consumed over the years, which lowered your basis and raised your taxable gain. The 2017 law reversed that. The Internal Revenue Service now states directly that the adjusted basis of an insurance contract is not reduced by the cost of insurance, and that the change reversed the earlier position. In plain terms, your basis is generally the premiums you paid.

How the gain is taxed

Your gain is the sale price minus your basis. The character of that gain splits in two.

Gain is treated as ordinary income up to the amount of the policy's inside build-up, meaning the cash surrender value over the premiums paid. Anything above that may qualify as capital gain. A term policy with no cash value has no inside build-up.

An example, with round made-up numbers. You sell a policy for $100,000. You paid $40,000 of premiums over the years, and its cash surrender value was $55,000.

Your basis is the premiums you paid: $40,000
Your gain is the sale price minus that: $100,000 − $40,000 = $60,000
The inside build-up is the cash value above the premiums: $55,000 − $40,000 = $15,000. That much of the gain is ordinary income.
The rest, $45,000, may qualify as capital gain.

Change one number and the split moves. A term policy with no cash value has no inside build-up at all, so none of the gain falls into the ordinary bucket.

Why this matters to you: ordinary income and capital gain are usually taxed at different rates, so the split is not academic. Get the numbers from your policy and take them to a tax professional before you agree to a price.

The viatical exception

Here the terminal-illness distinction matters. Under Section 101(g) of the Internal Revenue Code, if a death benefit on a terminally ill insured is sold or assigned to a viatical settlement provider, the amount paid is treated as an amount paid under the policy by reason of the death of the insured. That means it comes to you free of income tax, just as a death benefit would.

The conditions are narrow. A physician must certify a condition reasonably expected to result in death in 24 months or less. And the buyer must be licensed for viatical settlements in the state where the insured lives, or, where the state doesn't license them, must meet the standards named in the statute.

Texas's department states the consumer version: a doctor must certify that you have two years or less to live, and you don't have to pay taxes on earnings from the settlement.

Outside that exception, a life settlement is generally taxable above your basis. "Tax-free" belongs to the viatical case, and it is worth being precise about which one you're in.

One rule aimed at the buyer, which shapes the market

Section 101(a)(2) says that when a policy is transferred for valuable consideration, the amount the new owner can exclude is limited to what they paid plus the premiums they subsequently paid. The 2017 law added rules for what it calls a reportable policy sale, defined as acquiring an interest in a life insurance contract where the acquirer has no substantial family, business, or financial relationship with the insured apart from their interest in the contract.

That describes an investor buying a stranger's policy exactly. You don't need to work the rule out yourself, but it's useful to know it exists, because it's part of why the buyers are structured the way they are and why they price the way they do.

The cautions, from the regulators

These are the warnings state and federal regulators publish, not ours.

Your family loses the coverage. FINRA frames the decision as weighing your need for current income against the future financial needs of your survivors. Replacement coverage may not be available, and the old policy still being in force through the purchaser may affect your ability to get more.
Public assistance. The insurance commissioners' consumer guidance says to find out if you'll lose benefits such as food stamps or Medicaid if you take a cash settlement. This one catches people badly, because the money can disqualify you from the thing that was actually paying for your care.
Creditors. The same guidance: know that your creditors could claim the proceeds. A death benefit paid to a named beneficiary and a lump sum sitting in your bank account are treated very differently.
Costs and commissions. FINRA states that life settlements can have high transaction costs, that those who sell them can receive hefty commissions, and to ask how the person you're working with is being compensated. That's a direct instruction from a regulator, and it's a fair question to put in writing.
Ongoing contact, for the rest of your life. The buyer needs to know whether you're alive. Under the model law you may be contacted no more often than once every three months if your life expectancy is more than a year, and no more than once a month if it's a year or less. Some people find this genuinely difficult to live with. FINRA puts the underlying discomfort bluntly: the seller should appreciate fully that the buyer has a financial interest in their death.
Your medical information travels. FINRA notes the buyer may share it with other entities including lenders or third-party investors.
Buying a policy in order to flip it is a different matter entirely. The insurance commissioners warn that buying a policy to resell it immediately may be considered fraudulent and the parties may be prosecuted. New York's regulator names the practice: stranger-originated life insurance, which is prohibited under New York law.

Didn't find your fit? Check these before you sell

Regulators list alternatives first for a reason. Before selling, price out each of these against the offer in front of you:

An accelerated death benefit from your own insurer, if you're ill. Money from the company that already owes it, with no third party involved.
A policy loan against the cash value.
Reducing the death benefit to lower the premium, so you keep coverage you can actually afford rather than none at all.
Using the cash value to cover premiums.
Surrendering for cash value — usually the lowest figure, but the simplest and quickest.
A 1035 exchange into a different policy.
Keeping it. The option that gets skipped. If the premium is manageable and someone would be worse off without the death benefit, the correct answer may be to do nothing.

The nonforfeiture options in your own contract, like reduced paid-up coverage, may also be worth a look. Those live in your policy rather than in a regulator's alternatives list, and we cover them on the rules and riders page.

If you decide to look into it

Call your state insurance department first. Confirm your state regulates settlements, and confirm the specific provider and broker are licensed there.
Get your policy's current cash surrender value in writing from your insurer, and ask what an accelerated death benefit would pay if you qualify. Those are your floor numbers.
Ask the broker, in writing, how they're compensated and by whom.
Find your state's rescission period before signing.
Take the offer and your policy's cost basis to a tax professional. The split between ordinary income and capital gain can move the net figure meaningfully.
Ask what happens to your medical information, and how often you'll be contacted.
If you receive means-tested benefits, ask a benefits counselor what a lump sum does to your eligibility. Do this before, not after.

Common questions

What's the difference between a life settlement and a viatical settlement?

Both are sales of an existing life insurance policy to a third party. A viatical settlement is a sale by someone with a terminal or chronic illness. A life settlement is a sale by someone who is not terminally or chronically ill, for other reasons. The distinction matters most for tax: a qualifying viatical sale by a terminally ill person to a licensed provider is treated as though it were paid because of death, and is generally free of income tax. A life settlement is generally taxable above your basis in the policy.

How much can I get for my policy?

It depends on your life expectancy, the premiums required to keep the policy going, and the policy itself. Texas's insurance department states that sale amounts typically range from 10 percent to 75 percent of the death benefit. That's one state regulator's figure rather than a national average, and the range inside it is very wide. What can be said with certainty is that an offer should exceed the cash surrender value, since that is what you could get from your own insurer without selling.

Do I pay tax on the money?

Usually some. Your gain is the sale price minus your basis, which after the 2017 tax law is generally the premiums you paid, without reduction for the cost of insurance. The gain is treated as ordinary income up to the policy's inside build-up, and any excess may be capital gain. The exception is a sale by a terminally ill person to a licensed viatical settlement provider, which is generally free of income tax under Section 101(g).

Can I change my mind after I sell?

Yes, within a window, but the length varies by state and there is no national figure. The model law provides a right to rescind before the earlier of sixty days after the contract is executed or thirty days after the proceeds are sent. New York gives from signing until fifteen days after you receive the proceeds. Rescinding generally requires returning the proceeds and premiums. Find your own state's period before you sign.

Will selling my policy affect my Medicaid or other benefits?

It can. The insurance commissioners' consumer guidance specifically tells sellers to find out whether they will lose public assistance benefits such as food stamps or Medicaid if they receive a cash settlement, and the disclosure is required under the model law. The proceeds may also be reachable by your creditors. Ask a benefits counselor before you sell, not afterward.

Who will contact me after the sale, and how often?

The buyer needs to verify that the insured is living. Under the model law, contact is limited to no more often than once every three months where life expectancy is more than one year, and no more than once a month where it is one year or less. Your medical, financial and personal information may also be disclosed as necessary to complete the settlement, and you may be asked to renew that permission every two years.

Are life settlements a good idea?

For some people they are, and for others they aren't. If you own a policy you no longer need, a sale can pay more than surrendering it to your insurer. But it's a market with real hazards: high transaction costs, commissions, ongoing contact from a buyer who profits when you die, and the risk that the cash disqualifies you from Medicaid or other means-tested benefits. Regulators tell you to price the alternatives first, including an accelerated death benefit from your own insurer, a policy loan, or simply keeping the policy. Treat a sale as the last option to check, not the first.

Who qualifies to sell a policy, and is there a minimum age?

Texas's insurance department states that most buyers won't purchase a policy unless you're 65 or older or have a terminal illness, because their return depends on your life expectancy. A viatical sale, the version for someone who is terminally ill, generally needs a physician to certify a condition expected to result in death within 24 months. We found no regulator stating a minimum policy size, so ask the provider rather than relying on a number you read anywhere. The provider and broker also have to be licensed in your state.

What happens to my policy after I sell it?

The buyer becomes the new owner and beneficiary. They take over the premiums, keep the policy in force, and collect the full death benefit when you die. You no longer control the coverage, and your family no longer receives it. The buyer needs to know whether you're living, so you'll be contacted periodically, limited by the model law to no more than once every three months where life expectancy is over a year, and no more than once a month where it's a year or less.

Sources

NAIC: Understanding Life Settlements, consumer brochure content.naic.org
NAIC Viatical Settlements Model Act: licensing, broker duty, rescission, disclosures content.naic.org
NAIC: state insurance department directory content.naic.org
FINRA: What You Should Know About Life Settlements finra.org
FINRA Regulatory Notice 09-42: transaction costs and commissions finra.org
New York Department of Financial Services: life settlements consumer booklet dfs.ny.gov
Texas Department of Insurance: life insurance guide, including settlements tdi.texas.gov
Internal Revenue Code §101, including §101(g) and the transfer-for-value rules law.cornell.edu
IRS Revenue Ruling 2020-5: basis is not reduced by the cost of insurance irs.gov
IRS Revenue Ruling 2009-13: how gain on a policy sale is characterized irs.gov

Reviewed by AI and James Mills · Retired financial planner; held professional designations in Financial Planning, Life Insurance, and Estate Planning; former Florida life insurance agent.

Last updated: July 23, 2026