What is life settlement?

A life settlement refers specifically to the transaction in which an individual sells their life insurance policy to a third party. In this arrangement, the seller receives an amount that is greater than the cash surrender value of the policy but less than the full death benefit, also known as the face value. This option is often pursued by policyholders who no longer need their insurance coverage or can no longer afford the premiums but wish to obtain some financial benefit from the policy.

This transaction allows the buyer to assume responsibility for the policy, including premium payments, and ultimately collect the death benefit when the insured passes away. Life settlements can provide significant financial relief or a way to access funds for those in need while still facilitating the continuation of life insurance coverage for the buyer. The structured nature of the deal reflects the changing priorities of the seller and the investment perspective of the buyer.