You signed up for life insurance in an effort to provide a financial safety blanket for your loved ones after your death, but what if you don’t need it or simply can’t afford it anymore?

Did you know that it can be turned into cash while you’re still alive to get you out of a financial crisis? You could even use it to build supplemental income for your golden years.

That’s right. You can sell your life insurance policy just like any other private property. This transaction is called a life settlement.

Maybe you need the cash to cover a major (and unexpected) expense or simply want to rid yourself of paying the monthly premium. Often, a life settlement is the only lifeline for many older adults struggling to cover heaps of medical bills after they fall critically ill or need long-term care in retirement.

Those unaware of this option end up selling their cars or homes or pile up huge debts while paying for care, not knowing that their insurance policy could get them the same amount (or more) of cash than what their vehicle is worth or the total equity in their property.

If you ever think of going down the same route, please don’t. Selling your life insurance policy to an individual or entity may be a smart move, depending on your unique circumstances. Knowing how to sell it and determining if it’s even the right move for you is critical to your financial future.

Related: Life Insurance: What to Consider As a Business Owner

Understanding life settlement: What is it and how does it work?

A life settlement is when you sell your life insurance policy to a third party for a lump sum that’s less than the net death benefit but more than the cash surrender value.

Sellers usually receive a lump sum, and afterward, the buyer assumes responsibility for the policy, paying the premiums and receiving the full death benefit when the policyholder passes away.

As the policy owner, you can avail several advantages from a life settlement. Some of these include the following:

• It provides an immediate source of cash that you can use for any purpose, from paying off debts to funding a business venture and covering major expenses that may have arisen unexpectedly.
• You no longer have to keep track of the premiums that must be paid to the life insurance company.
• You no longer have to stress over saving to pay for the premiums if you can’t afford the policy anymore and don’t want it to lapse.
• You can use the lump sum to create a retirement fund or supplement your retirement income by purchasing an annuity.
• You can reserve the cash to pay for long-term care needs that may arise.

A life settlement is also an attractive option for those who have a policy with a high cash surrender value but don’t need the death benefit. For example, you may have purchased a life insurance policy to secure the financial future of your spouse or children, who are no longer dependent on you. With them becoming financially independent, the policy may no longer be needed.

The same goes for seniors who may have purchased a policy when they were in good health, but now, with their deteriorating health, they may be struggling to afford the premiums. A life settlement can help them eliminate this burden and improve their quality of healthcare and life.

Related: Why Life Insurance Has to Be Part of Your Wealth-Building Plan

Eligibility requirements for a life settlement

Generally, you must be 65 or older and your policy must have a minimum face value of $100,000 to qualify for a life settlement. This is because investors wouldn’t want to pay premiums on a policy for you if you could continue to live for decades.

Also, many states require you to wait at least a couple of years after a life insurance policy is issued before you can sell it. In some states, the waiting period is five years.

Are there any drawbacks to a life settlement?

The only drawback of a life settlement is that you’ll no longer have life insurance coverage. But if your family’s financial future is secure and you don’t need the policy, there’s nothing to lose in a life settlement transaction.

Ready to make the big decision?

Whether you need the cash or want to free yourself of the premiums, life settlements are a big decision.

You must carefully assess your circumstances and consider all the benefits and drawbacks of selling a life insurance policy before making the final decision. Also, make sure you fully understand the laws in your state regarding life settlements to avoid getting into trouble.

If you think a life settlement is the best way forward for you, get in touch with a life settlement broker or financial advisor to discuss your options. It really helps to shop around before sealing the deal because some companies tend to make less than lucrative offers. A professional can help you make sure you get a fair price for your policy.

As soon as a suitable prospect is found, you and the buyer will have to sign a contract outlining the terms of the sale. Once the contract has been signed, you’ll receive the agreed-upon amount in a lump sum from the buyer.