What Is a Life Settlement?
A life insurance policy is more than just protection for your loved ones — it’s actually a valuable financial asset, just like a house or car. And just like you can sell a house when you no longer need it, you can also sell your life insurance policy.
Many people think about doing this later in life. Maybe you’re retired and want more money to enjoy life. Or maybe your kids are grown, and you don’t need the coverage anymore. That’s where a Life Settlement comes in.
So, Exactly What Is a Life Settlement?
A life settlement is when you sell your life insurance policy to a third-party buyer in exchange for a cash payment. After the sale, the buyer takes over the policy — they keep paying the premiums and become the new beneficiary who receives the death benefit when you pass away.
Instead of letting the policy lapse or canceling it for a small amount of cash, you could sell it for a lot more money. This gives you immediate access to cash you can use however you want — for healthcare, debt, retirement, travel, or anything else.
It’s a way to turn a policy you no longer need into money you can use now.
Why Do People Choose a Life Settlement?
Everyone’s situation is different, but here are the most common reasons people decide to sell their life insurance policy:
- You Don’t Need the Coverage Anymore
Sometimes, the reason you got the policy in the first place no longer applies. Maybe your kids are financially independent. Maybe your spouse has passed away. If no one really needs the payout from your policy anymore, selling it could be a better use of that value.
- The Premiums Are Too High
As you get older, it often costs more to keep your life insurance active. If paying the premiums has become a financial burden, a life settlement can give you relief. Instead of paying more money, you get money back.
- You Need Extra Cash
The money you get from a life settlement can help with all kinds of expenses — medical bills, long-term care, travel, home repairs, or simply making retirement more comfortable. It gives you financial flexibility and peace of mind.
A Smart Option for Many Seniors
A life settlement can be a great option if you no longer need your life insurance policy or find it too expensive to keep. It helps you get value from something you might otherwise let go unused.
But it’s important to make sure it’s the right move for you. Talk to a licensed life settlement broker or financial advisor. They can explain your options, help you understand what your policy is worth, and guide you through the process.
Exploring Your Options: Cashing Out a Life Insurance Policy
If you no longer need your life insurance policy, you have several options for turning it into cash. Each one has its pros and cons, so it’s important to understand them fully before making a decision.
Option 1: Surrendering the Policy
Surrendering your policy means canceling it in exchange for its Cash Surrender Value of Life Insurance — the amount of money the insurance company gives you when you give up the policy.
The process is simple: you notify the insurer, fill out a form, and receive a check. This is often the fastest way to get cash from your policy.
But there’s a catch — the surrender value is usually much lower than what you could get through other options, like a life settlement. In fact, life settlements can pay up to ten times more than the surrender value.
So while surrendering your policy is quick and easy, it might not give you the best financial return.
Option 2: Life Settlements
A Life Settlement is when you sell your life insurance policy to a third-party buyer for a lump sum. The buyer becomes the new owner and pays the premiums going forward. When you pass away, they receive the death benefit.
The amount you get from a life settlement is often four to five times higher than the surrender value — sometimes even more.
To qualify for a life settlement, you usually need to:
- Be at least 65 years old, and
- Have a policy worth $100,000 or more
If you’re under 65 but have a serious health condition, you may qualify for a viatical settlement instead. These are available for people with terminal or chronic illnesses and often move faster.
What to expect:
A traditional life settlement can take 3 to 6 months to complete because it involves paperwork, medical records, reviews, and legal steps. Viatical settlements, especially for terminal cases, often close faster — usually within 6 to 9 weeks.
Choosing the Right Type of Life Settlement
If you decide to go the life settlement route, there are three main ways to structure the deal:
- Traditional Life Settlement
You sell 100% of the policy for a lump sum.
- You stop paying premiums.
- You no longer have any claim to the death benefit.
- You get the most immediate cash.
- Retained Benefit
You keep part of the death benefit but no longer pay premiums.
- You get some cash now.
- Your beneficiaries still receive a smaller benefit when you pass away.
- It’s a good mix of upfront money and continued protection.
- Hybrid Option
This lets you sell part of your policy and also keep a guaranteed portion of the death benefit — with no future premiums.
- Offers flexibility and control.
- Combines immediate cash with ongoing coverage.
Which Option Is Right for You?
The best choice depends on your financial needs, health, goals, and family situation. If you’re unsure, talk with a licensed life settlement broker or a financial advisor. They can explain your options and help you make the most informed decision.
How to Sell Your Life Insurance Policy
If you’ve decided to Sell Your Life Insurance policy through a life settlement, it’s important to follow the right steps. This ensures you get the most value and avoid problems along the way.
Step 1: Choose a Trusted Broker or Provider
Start by finding a licensed broker or provider in your state. This protects you legally and helps make sure you’re working with someone reliable.
Make sure they are transparent about their fees and process. Life settlement appraisals are usually free. If someone tries to charge you upfront, it could be a red flag.
Step 2: Share Your Medical Records
Once you’ve chosen a broker or provider, you’ll need to provide access to your medical records. These will be reviewed by an independent agency to help determine the value of your policy.
Step 3: Review Offers Carefully
After your records are reviewed, you may receive several offers from buyers. Take time to compare them closely — look at how much cash each one offers and what terms are attached.
Work with your advisor or broker to pick the offer that gives you the best combination of value and financial security.
Viatical Settlements: Financial Relief During Serious Illness
If you’re facing a serious illness like cancer or a chronic condition that affects your daily life, a Viatical Settlement could be a financial lifeline.
This type of settlement lets you sell your life insurance policy for immediate cash — often much more than a regular life settlement. While a typical life settlement might pay out 20–25% of the policy’s face value, a viatical settlement can pay up to 70%.
This higher value is possible because investors expect a quicker return when the policyholder has a terminal or severe illness.
Faster Access to Funds
Because of the urgency in medical situations, viatical settlements are often processed more quickly — sometimes in just 6 to 9 weeks. This can help cover important costs like medical treatment, home care, or other urgent expenses.
Tax Considerations
If the money is used for qualified medical expenses (not long-term care), viatical settlement funds are tax-free. But if you don’t use all the money for medical costs, the unused portion may be taxable as income — just like in a regular life settlement.
It’s smart to talk with a financial advisor about the best way to manage and use these funds.
Can You Sell a Term Life Insurance Policy?
Yes — in some cases, it’s possible to Sell a Term Life Insurance Policy, but only after converting it into permanent coverage.
How It Works
If you’re a senior and your policy has a face value of at least $100,000, you may qualify to convert it. After conversion, you can explore a life settlement.
This step is essential because investors won’t buy a term policy unless it’s been converted. That’s because there’s too much risk the policy could expire before the insured person passes away, meaning they’d receive no payout.
What to Consider
- Talk to your insurer first to see if conversion is available.
- Understand what the new premium will cost.
- Decide whether the potential payout from a life settlement is worth the extra cost of conversion.
Before making any decisions, be sure to weigh the pros and cons. A trusted advisor can help you determine whether converting and selling your term policy is the right move.
Understanding Life Settlement Taxes
Life Settlement Taxes can be a bit tricky and depend on several factors. In general, you’re taxed on the difference between what you received and what you paid into the policy.
Example:
Let’s say:
- You paid $100,000 in premiums
- You received $250,000 from selling your policy
In this case, you would pay income tax on $150,000, which is the difference.
However, tax rules for life settlements can change and are complex. That’s why it’s smart to talk to an accountant or financial advisor. They can help you understand your specific situation and find ways to reduce your tax burden.
The Life Settlement Process: What to Expect
Selling your life insurance policy can be a smart move—but only if done carefully. Here’s what to expect and how to make the most of the process.
Step 1: Choose a Trustworthy Broker
Not all brokers are the same. Make sure the one you choose:
- Is licensed in your state
- Has a strong reputation
- Is clear about all fees (appraisals should be free—watch out for hidden costs)
Step 2: Share Your Medical Records
Once you’ve chosen a Life Settlement Broker, the next step is providing access to your medical history. An independent agency will review your records to help determine how much your policy is worth. These agencies follow strict privacy standards, so your information is protected.
Step 3: Review and Accept an Offer
After your records are reviewed, you’ll receive offers from interested buyers. At this stage, your earlier work—choosing the right broker and submitting accurate records—pays off.
Take your time to compare offers and choose the one that best fits your needs. The right deal should give you peace of mind and financial freedom.
Summit Life Settlements: A Smarter Way to Sell Your Policy
Selling your life insurance shouldn’t be complicated or stressful. At Summit Life Settlements, we make the process simple, transparent, and rewarding.
Our Marketplace Makes the Difference
Summit Life Marketplace is more than just a platform—it’s a secure, easy-to-use network that connects you with multiple trusted buyers. We help you:
- Get more offers
- Compare prices
- Choose the deal that gives you the best value
You’ll have full control over your policy’s sale—no hidden steps, no delays.
Technology That Works for You
Say goodbye to long forms and endless back-and-forth. Our platform uses modern tools like:
- Digital document signing
- Easy offer tracking
- Instant access to records
This means less hassle, faster results, and more money in your pocket.
Empowering You Every Step of the Way
At Summit Life, we believe that selling your life insurance policy should be a step toward greater financial freedom. We’re here to guide you through the process, help you avoid common pitfalls, and make sure you get the value you deserve.
You’re not just selling a policy—you’re unlocking its full potential. With Summit Life, you’re in control.
Start your journey today.
Life Settlement FAQs
1. What is a life settlement?
A life settlement is the sale of a life insurance policy to a third party for a lump sum payment. The amount is more than the policy’s cash surrender value but less than the death benefit. After the sale, the buyer takes over premium payments and receives the death benefit when the insured passes away.
2. Who qualifies for a life settlement?
While requirements vary, most sellers meet the following criteria:
Age 65 or older (younger if facing serious health issues)
A policy with a face value of at least $100,000
A policy type that is convertible or permanent, such as whole, universal, or convertible term
3. How much money can I get from a life settlement?
It depends on several factors, including your age, health, policy type, and policy size. On average, a life settlement pays 4 to 7 times more than the cash surrender value of a policy.
4. What types of life insurance policies qualify?
Most life settlement buyers accept:
Universal Life
Whole Life
Convertible Term Life
Variable Life
Non-convertible term policies usually do not qualify unless they can be converted.
5. Will I owe taxes on a life settlement?
Yes, possibly. Life settlement proceeds are typically taxable as income, especially if they exceed the premiums you’ve paid into the policy. We recommend consulting a tax advisor to understand your specific tax liability.
6. What is the difference between a life settlement and a viatical settlement?
A life settlement is for seniors with a policy they no longer need or can afford.
A viatical settlement is for people with a terminal or chronic illness, regardless of age, and usually pays more than a regular life settlement.
7. How long does the life settlement process take?
On average, the process takes 3 to 6 months, depending on how quickly your medical records and policy documents are reviewed. Viatical settlements may close faster—sometimes in 6 to 9 weeks.
8. Do I need to keep paying premiums after I sell my policy?
No. After the sale, the buyer becomes responsible for all future premium payments.
9. Will my beneficiaries receive anything after the sale?
No. Once the policy is sold, your beneficiaries give up any claim to the death benefit, unless you retain a portion of the policy through a retained benefit or hybrid settlement option.
10. Can I sell just part of my policy?
Yes. Some buyers offer options like:
Retained Benefit – You stop paying premiums but keep a portion of the death benefit.
Hybrid Settlement – You receive a lump sum and keep some death benefit.
11. How do I know if I’m getting a fair price?
Using a licensed life settlement broker like Summit Life Settlements helps you receive multiple competing offers, ensuring you get the highest possible value for your policy.
12. Are there fees involved in a life settlement?
There may be a broker commission, which is typically paid by the buyer, not the policyholder. Legitimate brokers are upfront about fees, and initial appraisals are free.
13. Will selling my policy affect my government benefits?
Possibly. Life settlement proceeds could affect your eligibility for Medicaid, Supplemental Security Income (SSI), or other needs-based benefits. Speak with a financial advisor before selling.
14. Is the money I receive from a life settlement tax-free?
No, most life settlement proceeds are taxable. However, viatical settlements for terminally ill individuals may be tax-free under IRS rules.
15. Is a life settlement the same as surrendering my policy?
No. Surrendering your policy gives you the cash surrender value, which is often far less than what you’d receive from a life settlement. A life settlement gives you access to market value, which can be much higher.
