Spotlight on: Life Settlements

Before you let that old, unwanted life insurance policy lapse, it may be wise to check all of your options.  Better yet, check to see if your policy could be sold for cash to investors.  You could have a pleasant surprise ahead.

What is a Life Settlement?

The process of selling an unwanted or unneeded life insurance policy is called life settlement.  The amount you will receive will be less than the face value but more than its cash surrender value.  Term life insurance that has no cash value can sometimes be converted to permanent insurance and then sold on the open life settlement market.

A first step is to seek the advice of a licensed life insurance agent or licensed life settlement broker.  They will probably tell you that most investors are looking to buy policies on people who have less than 12 years to live.

This life settlement industry burst open in the 1980s with the AIDS epidemic when terminally ill people decided that having some cash in hand now was more important than giving away life insurance proceeds after death.  A life settlement on a terminally ill person with less than two years to live is called a viatical settlement.  Today, most life insurance policies have a terminal illness benefit which allows a pre-death payout under certain circumstances.

Following the drop off of the viatical settlement wave as medical advancements in the treatment of AIDS prolonged the lives of those afflicted, the viatical settlement market found the growing financial needs of seniors filled the void and life settlements became forefront in the practice of selling a life insurance policy for cash to a third party. The National Association of Insurance Commissioners (NAIC) regulates the sale of these policies and rules have been set up for both buyers and sellers.

How Do I Sell My Policy?

The process of selling a life insurance policy is centered around getting cash bids from investors.  Typically, a policyholder needs to be at least 65 years of age or a life expectancy of no more than 12 years. Also, the policy must have a death benefit of at least $100,000. These are only a few basic requirements but differs from a viatical settlement in that the owner of the policy does not need to be terminally ill to sell.

The types of buyers of these policies include life settlement brokerage firms and investors. The owner of the insurance policy sells the policy and receives a cash payout of more than the policy’s cash surrender value but less than the net death benefit.  This money is received, and the investor now owns the life insurance policy. The investor (buyer of the life insurance policy) will take over the premium payments and will ultimately collect the death benefit when the policy’s insured passes away.

Why Should I Sell My Policy?

People sell life insurance policies for many different reasons. Perhaps the original reason a person bought the policy no longer is relevant and the policy is too valuable with its built-up cash surrender value to simply terminate payments and walk away. Perhaps the need for instant cash is more important than a promise of death benefits to someone else later on.

In recent years, life settlement have become popular with older adults who may not want to pay for life insurance premiums on policies that will end up not being needed as originally intended when bought. Rather than continuing to pay premiums on a policy that no longer serves its original purpose, life settlements offer consumers payoffs that can be significantly greater than surrendering a policy.

The Life Insurance Settlement Association (LISA), in a Feb. 6, 2019 publication, stated that the secondary market for life settlements is trending to grow in 2019 by becoming an asset for those looking for instant cash now from a currently owned life insurance policy gathering dust on the shelves. (

Ashar Group, a financial advisory firm specializing in the life settlement secondary market remarks, “Over the past few years, we’ve found that life settlements have gradually been moving more into the mainstream financial world.  As we meet with advisors, we find that many more know about this secondary market solution than was true in the past.” (Retrieved from It is always advised to contact your financial adviser before making decisions about your life insurance policy.

Have more life insurance questions? Read our article The Most Frequently Asked Life Insurance Questions

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