What is a life settlement? A life settlement is the sale of a life insurance policy-usually insuring the life of an individual age 65 or older-to a third party for an amount greater than the cash surrender value. Life settlements allow the owner of a policy to obtain a cash payment while the new owner assumes the rights to the policy. The new owner continues to make the premium payments, and therefore receives the proceeds from the death benefit.
Prior to the life settlement opportunity, an owner had few options once they made the decision that the policy was not needed, wanted, or affordable. Their only option was to surrender the policy to the life insurance carrier or allow the policy to lapse. For term policies, the opportunity is applicable when a policy owner decides not to convert the policy to permanent insurance. The policy holder can now sell the life insurance policy to a third party.