A life settlement is the sale of a life insurance policy to a third party for a value in excess of the policy’s cash surrender value, but less than the face value of the policy. In exchange for a cash payment to the policy owner, the purchaser of the policy assumes all future premium payments and receives the death benefit upon the death of the insured.
Life settlements are most commonly viable for insured individuals above the age of 65 with life insurance policies in excess of $50,000. Universal life, whole life and even term policies can be sold if they are no longer needed or no longer affordable.
In many cases, life settlements can provide proceeds to help with expenses for health care, assisted living and other retirement income needs, or even just allow for the recovery of lost premium dollars.
According to a study conducted in 2009 by the United States Senate Special Committee on Aging, life settlements, on average, yield 8x more than the cash surrender value available to policy owners.