Life Settlement

What is A Life Settlement?

Life settlements refer to the sale of a life insurance policy, for more than the policy's cash value, to an investor who will keep the policy open until the person on whose life the policy is on dies. A life settlement provides a lump sum payment to the policyholder when, in many circumstances, the policy would have expired anyway. The policyholder does not to put up any cash or make any kind of investment. After receiving their lump sum life insurance settlement, the policyholder will have no further financial obligations.   

Life insurance settlements are often desirable to policyholders who may require, a lump sum cash payment and whose policy was in danger of expiring anyway. This is often because the actual cash value of the policy is not enough to cover the annual insurance costs, or in the case of term life insurance policies, where the owner cannot keep up the necessary premium payments.

Life settlements should not be confused with viatical settlements. Although fundamentally similar, viatical settlements are typically made when the policyholder has been diagnosed as being terminally ill and has less than two years to live.

Nearly all types of life insurance policy will qualify for life settlements, and in some situations even group life policies can be settled. It is very rare for the policyholder to be asked to take a medical examination before the settlement. Usually the policy's value can be calculated based on the person's age and general state of health, although the prospective buyer will normally ask for medical release forms.

Next > Personal Injury Settlement