Life Settlements
A life settlement is the sale of an existing life insurance policy to a licensed third-party buyer for a lump sum of cash. The payout is more than the cash surrender value but less than the death benefit. You get cash now; the buyer takes over premiums and collects the death benefit later.
See What Your Policy Is WorthA life settlement is a financial transaction in which the owner of a life insurance policy sells that policy to a third-party institutional buyer for a cash payment. The cash payment, known as the settlement amount, is greater than the policy's cash surrender value but less than the net death benefit. After the sale, the buyer becomes the new policy owner and beneficiary, assumes responsibility for all future premium payments, and collects the death benefit when the insured passes away.
Life settlements are sometimes confused with viatical settlements. A viatical settlement specifically refers to the sale of a policy by someone with a terminal or chronic illness. A life settlement refers to the sale of a policy by someone who is typically 65 or older and no longer needs the coverage, regardless of health status. Both transactions are regulated at the state level.
The concept has been legal in the United States since the Supreme Court's 1911 decision in Grigsby v. Russell, which established that life insurance is personal property and can be freely transferred. Today, life settlements are regulated in 43 states, with consumer protections including disclosure requirements, rescission periods, and licensing standards for brokers and providers.
Seniors 65 and older who have accumulated a policy they no longer need.
People who can no longer afford their premiums and are considering lapsing their policy.
Those whose coverage needs have changed — children are grown, mortgages are paid.
Business owners with key-person or buy-sell policies that are no longer needed.
Understanding how a life settlement works helps you make an informed decision. Here is what happens from start to finish.
You speak with a licensed life settlement broker who evaluates whether your policy is a candidate for settlement. This is free and carries no obligation.
The broker collects your policy documents and requests your medical records. This information determines the policy's market value.
The broker presents your policy to multiple licensed institutional buyers who submit competing offers. More bidders means a higher price for you.
You review all offers, accept the best one, and sign the closing documents. Funds are typically placed in escrow and released within 60 to 120 days of the initial application.
Most permanent life insurance policies qualify — and more than people expect.
Universal Life
Flexible premium policies are among the most commonly settled.
Whole Life
Traditional permanent policies with cash value typically qualify.
Variable Life
Variable policies with investment components are settleable in most cases.
Convertible Term
Term policies with conversion rights and group policies may also qualify.
Most settlements pay 4–7x the cash surrender value your insurance company would give you. But the range is wide — it depends on your age, health, policy type, and face value.
The only way to know your number is to go to market. That means competitive bidding among institutional buyers — with a broker in your corner making sure you see every offer.
Find Out What Your Policy Is WorthSettlement value isn't random. These are the factors institutional buyers evaluate when bidding on your policy:
Older policyholders generally receive higher settlement offers. Most buyers focus on ages 65+.
Health changes often increase settlement value. Shorter life expectancy = higher offer from buyers.
Higher face values attract more buyers. $100K minimum; best results above $250K.
Universal life settles most often. Whole life, variable, and convertible term also qualify.
Lower ongoing premiums make the policy more attractive to buyers, resulting in higher bids.
More bidders = higher price. A broker ensures maximum market exposure for your policy.
A life settlement is the sale of a life insurance policy to a licensed institutional buyer for a lump sum of cash — more than the cash surrender value, less than the death benefit. It is legal, regulated, and has been upheld by the U.S. Supreme Court since 1911.
Most people aged 65 or older with a life insurance policy of $100,000 or more in face value qualify. Health changes, policy type, and premium costs also affect eligibility.
Most life settlements pay 4–7 times the cash surrender value. The exact amount depends on your age, health, policy type, face value, and premiums. The only way to know is competitive bidding among institutional buyers.
Yes. The right to sell a life insurance policy was established by the U.S. Supreme Court in Grigsby v. Russell (1911). Life settlements are regulated in 43 states.
Most life settlements close within 60–120 days. The timeline depends on how quickly medical records and policy documents are obtained.
Universal life, whole life, variable life, convertible term, and some group life policies qualify. The policy must typically have a face value of at least $100,000.
A viatical settlement involves the sale of a life insurance policy by someone with a terminal or chronic illness. A life settlement involves the sale of a policy by someone who is typically 65 or older and no longer needs the coverage. Both are regulated transactions, but viatical settlements often involve different tax treatment and different buyer pools.
The tax treatment depends on how the proceeds compare to your total premiums paid and the cash surrender value. Generally, proceeds up to total premiums paid are tax-free, proceeds between premiums and cash surrender value are taxed as ordinary income, and proceeds above cash surrender value are taxed as capital gains. Always consult a tax advisor for your specific situation.
Yes. When you sell your policy in a life settlement, the buyer becomes the new owner and beneficiary. You no longer have coverage under that policy. If you still need life insurance, consider keeping a portion of your coverage or purchasing a new, smaller policy before completing the settlement.
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Key Points
A life settlement is the sale of an existing life insurance policy to a licensed third-party buyer for a lump-sum cash payment that is greater than the policy's cash surrender value but less than the death benefit.
