If you want to sell a life insurance policy to take advantage of its proceeds while you are alive, you can enter into a viatical settlement. This involves selling to a third party that specialises in this type of transaction.
With a viatical settlement, you sell your policy for cash to a third party for a figure that is less than the policy's face value. The buyer continues to pay any premiums and cashes in the policy upon your death. The buyer hopes to profit by paying less in premiums for the policy than he ultimately receives in death benefits.
Viatical arrangements are often entered into by terminally ill policyholders who want to make use of the money while they are still alive. These arrangements may also be made in emergency situations when policyholders need quick cash.
By selling your life insurance policy, you may be creating a financial hardship for loved ones who may need the insurance proceeds if you die. Moreover, any amount you receive that is greater than the premiums you have paid over time is also usually considered as taxable income.
Depending on the viatical settlement company you're dealing with, you may need to meet certain eligibility requirements. Typical requirements include owning your policy for at least two years, obtaining a signed release from the beneficiary, having a life expectancy of two years or less (or four years in some cases) and signing a release granting access to your medical records to the viatical settlement company.