What is a Life Settlement?

A life settlement is a financial transaction in which a policy owner possessing an unneeded or unwanted life insurance policy sells the policy to a third party for more than the cash value offered by the life insurance company. The purchaser becomes the new beneficiary of the policy at maturation and is responsible for all subsequent premium payments.

Life settlements are an important development in that they have opened a secondary market for life insurance in which policy owners can access fair market value for their policies, rather than accepting the lower cash surrender value from the issuing life insurance company.

Steps in a Transaction

1. Policyowner consults with an advisor, decides to sell his or her policy.
2. Policy owner and advisor decide whether to work with broker or to go directly to providers.
3. Client & advisor submit policy for valuation. Client releases medical information.
4. If policy meets criteria for a life settlement, providers send offers directly or through a broker.
5. Client and advisor review offers and client accepts his preferred offer.
6. Client and advisor complete the provider's closing package, and return essential documents.
7. Provider places cash payment in escrow and submits change of ownership forms to the insurance carrier.
8. Paperwork is verified and funds are transferred to the policy seller.