When is a life insurance policy most likely to have value in this market? Here are some guidelines, according to Daily:

  • It's a cash-value policy, particularly a universal life policy. Cash-value policies, also known as "permanent" insurance, combine a death benefit with an investment component that builds up value over time. Term insurance, which is pure insurance with no investment component, typically has no value unless the owner's death is imminent. (See which is right for you with our quiz.)
  • The policy has a face value of $250,000 or more, although some investors specialize in big portfolios of smaller-value policies.
  • The owner has a life expectancy of 15 years or less. As you might expect, the shorter the life expectancy, the more the policy may be worth.

The policy also typically needs to be at least two years old and cover only one person. So-called second-to-die policies that cover couples are usually valuable only if one of those covered is already dead.

How to sell

To sell a policy, you'll need to work with an insurance agent or broker who specializes in this market, but you also should have an independent adviser -- such as an attorney, CPA or financial planner -- who isn't earning commissions from the sale.

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Here's what to do:

  • Make sure you no longer need the policy. The factors that are most likely to make your policy valuable -- you're over 65 and in poor health -- mean you're unlikely to qualify for new insurance. So review why you bought the policy in the first place, and make sure the need you were trying to cover is no longer there. If you still have people financially dependent on you, for example, you may still need insurance. You can take our quiz to estimate your needs.
  • Consider your alternatives. If you need money, you typically can borrow against your policy's cash value and still keep your coverage in place. You also may surrender your policy to the insurance company for cash, although your payout could be less than you'd get from a sale. If you're considering selling your policy because you can no longer afford the premiums, talk to your insurer about your options. You may be able to lower or skip premiums if you have a lot of cash value in the policy. Another option: Ask your kids or other beneficiaries to take over the premium payments. This is often the best option if your life expectancy is very short, since selling the policy would net you only a fraction of what the policy will shortly be worth.
  • Get several offers, if you can. This market is neither efficient nor robust, and some policies will generate little interest. But push your broker or agent to bring you more than one or two offers, since otherwise you may be presented with only the offers with high commissions attached.
  • Negotiate commissions based on the purchase price. Some brokers try to claim a commission based on the policy's face value, regardless of the amount they eventually get for you. Daily says that's wrong, and that you should base the commission you pay on the purchase price. "You shouldn't have to pay more than 10% if you're a responsible seller who appreciates the business reality of the broker," Daily said. "If the broker can make a good case for charging more, then I'd be willing to listen. But this market has a history of taking advantage of policyholders, so you're justified in being skeptical."

Liz Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "The 10 Commandments of Money: Survive and Thrive in the New Economy" (find it on Bing). Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. Join the conversation and send in your financial questions on Liz Weston's Facebook fan page.