No law sets a minimum age at which you can sell your life insurance policy. What determines whether you can sell is the life settlement market’s own math: most buyers want sellers who are at least 65, because a shorter remaining life expectancy makes the investment work. Younger policyholders can still sell if a serious health condition shortens their life expectancy, or if the death benefit is large enough to justify the deal.
Why 65 Is the Benchmark
Life settlement buyers are investors. They purchase your policy, pay the premiums going forward, and collect the death benefit when you die. The shorter your estimated remaining lifespan, the sooner they recoup their money, and the more they’ll offer today. Age and health drive every offer for that reason.
Most providers look for a life expectancy of roughly 15 years or less. A healthy 65-year-old usually falls inside that window. A healthy 55-year-old usually doesn’t. The “65” figure is really shorthand for a life expectancy buyers can price, not a hard cutoff written into any statute.
When Younger Sellers Can Still Sell
Age is a proxy, and the proxy breaks in two directions. A 50-year-old with heart disease, cancer, or another significant chronic condition can qualify easily, because the projected return to the buyer resembles that of a healthy person two decades older. A large death benefit can also pull a younger seller into the market when the numbers work out.
On the other side, a healthy person in their late 60s can qualify but should expect lower offers than someone the same age with a serious health issue. The offer tracks life expectancy, and health moves that estimate more than birthdays do.
What Else Buyers Look At
Age gets you in the door. These factors decide whether an offer actually comes.
- Policy type. Universal life and whole life are the most marketable, because they build cash value and stay in force as long as premiums are paid. Term policies can sometimes be sold, but only if they still have an active conversion option that lets the owner switch to permanent coverage. Once that conversion window closes, a term policy is almost certainly unsellable.
- Death benefit size. Most buyers set a minimum of $100,000. Smaller policies rarely produce enough return to cover transaction costs, though exceptions happen.
- Health. Buyers order medical records and physician statements to estimate life expectancy. Chronic conditions typically raise a policy’s market value because they shorten that estimate.
- Remaining premium burden. Policies with heavy ongoing premiums are less attractive because the buyer has to spend more to keep coverage in force. A fully paid-up policy commands more.
Waiting Periods After the Policy Is Issued
Even if every other box is checked, most states bar a life settlement for a set period after a policy is first issued. The rules exist to stop people from buying insurance purely to flip it to investors.
The most common waiting period is two years, and the range across states runs from two to five. The NAIC’s model act sets a five-year baseline, while a competing model from the National Conference of Insurance Legislators uses two years, and many states adopted the shorter version. Nearly every state also carves out exceptions that let you sell earlier: terminal or chronic illness, the death or divorce of a spouse, retirement, a qualifying disability, or bankruptcy.1National Association of Insurance Commissioners. Viatical Settlements Model Act
Separately, every life insurance policy carries a two-year contestability clause. During those first two years, the insurer can investigate and potentially deny claims if it finds misrepresentations on the original application. Nothing in the clause forbids a sale, but buyers strongly prefer policies past this window, because a rescission by the insurer would wipe out the investment. In practice, few buyers will look at a policy less than two years old.
What Sellers Typically Receive
Life settlements generally pay between 20% and 30% of the policy’s face value. A $500,000 policy might bring $100,000 to $150,000 before broker commissions and transaction costs. That’s well above the cash surrender value most insurers pay for a simple cancellation, and well below the full death benefit your beneficiaries would otherwise collect.
The exact figure turns on your age, health, policy type, the death benefit amount, and how much premium remains to be paid.
How the Sale Is Taxed
Life insurance death benefits are generally income-tax-free. Selling the policy is different: the proceeds are taxable, and the calculation has layers set out in IRS Revenue Ruling 2009-13.2Internal Revenue Service. Revenue Ruling 2009-13
Your tax basis equals total premiums paid minus the cumulative cost-of-insurance charges, meaning the portion of each premium that paid for actual insurance protection rather than building cash value. From there:
- The portion of the proceeds between your adjusted basis and the policy’s current cash surrender value is taxed as ordinary income.
- Any proceeds above the cash surrender value are taxed as a long-term capital gain.
The buyer reports the transaction to the IRS on Form 1099-LS, and the insurer reports your cost basis on Form 1099-SB. You’ll receive copies of both.3Internal Revenue Service. Instructions for Form 1099-LS (04/2025)
The Viatical Exception
If you’re terminally or chronically ill, the tax picture changes. Under IRC Section 101(g), amounts received from selling a policy to a qualified viatical settlement provider are treated like a death benefit and excluded from gross income. The exclusion is unlimited for terminally ill sellers and capped, with additional requirements, for chronically ill sellers.4Office of the Law Revision Counsel. 26 USC 101 – Certain Death Benefits
To keep the exclusion, the buyer must be licensed as a viatical settlement provider in states that require licensing, or meet NAIC standards in states that don’t. Selling to an unlicensed buyer forfeits the exclusion even when you’re terminally ill.
Effect on SSI and Medicaid
If you receive Supplemental Security Income or means-tested Medicaid, a settlement check can end your eligibility. The lump sum counts as income in the month you receive it, and whatever you still hold on the first day of the next month becomes a countable asset.
SSI’s countable resource limit is $2,000 for an individual and $3,000 for a couple. Most states apply a similar $2,000 limit for long-term care Medicaid, though a small number use significantly higher figures. In states that expanded Medicaid for general coverage, eligibility is income-based rather than asset-based, so how the money counts depends on which program you’re in. Talk to a benefits planner or elder law attorney before signing, because giving assets away for less than fair value to get back under the limit triggers its own penalty period.
Alternatives to Selling
Selling is irreversible. Once the policy transfers, your beneficiaries lose the death benefit entirely. A few options preserve more of the policy:
- Accelerated death benefit rider. Many policies let you draw a portion of the death benefit, often 25% to 50%, if you’re diagnosed with a terminal illness. The insurer pays it directly, the remainder still goes to your beneficiaries when you die, and there are no broker fees.5FINRA. What You Should Know About Life Settlements
- Policy loan. If your permanent policy has cash value, you can borrow against it and keep ownership. The unpaid balance plus interest reduces the death benefit, and the loan can eventually lapse the policy if interest outgrows the cash value.
- Surrender. Canceling the policy for its cash surrender value is the simplest exit. The payout is almost always lower than a settlement offer, but there’s no underwriting and no wait.
Watch for STOLI Approaches
If someone approaches you with a “free” or “no-cost” life insurance arrangement where an investor pays your premiums in exchange for eventually owning the policy, that’s stranger-originated life insurance. STOLI arrangements violate the insurable interest doctrine, are illegal in most states, and can leave you exposed to lawsuits from the investors who funded a policy an insurer later voids.
Legitimate life settlements are different: you bought the policy for genuine personal reasons and later decided to sell as your circumstances changed. The distinction is intent at the time of purchase, not how long you held the policy before selling.