A life settlement is a financial transaction where the owner of a life insurance policy sells it to a third party for a lump sum cash payment. This lets the policyholder get immediate cash, useful for covering medical expenses, retirement, or other financial needs. The settlement amount is generally more than the policy’s cash surrender value but less than its death benefit, offering better value than surrendering the policy back to the insurer.
Ownership transfers to the Buyer, who then pays the premiums. The new owner, often an institutional investor or life settlement company, assumes all future payments and receives the death benefit when the insured person dies. Buyers are motivated by the potential returns, as the death benefit is higher than the cost of purchasing the policy and paying the premiums.
The life settlement market has grown recently, attracting investors due to its high return potential. This process involves evaluating the policy, insured person’s health, and the policy’s market value. Professional intermediaries, like brokers, help ensure a fair transaction.

Policyholders may pursue a life settlement due to financial changes, need for liquidity, or dissatisfaction with the policy. Converting an illiquid asset into immediate funds offers financial flexibility.
This process provides financial benefits to both sellers and buyers, making life settlements popular in financial planning. As the market evolves, it offers new opportunities, highlighting the importance of informed decisions and professional guidance in managing life insurance assets effectively.