July 23, 2019 | by Thomas Day
A life settlement, or senior settlement, as they are sometimes called, involves selling an existing life insurance policy to a third party—a person or an entity other than the company that issued the policy—for more than the policy's cash surrender value, but less than the net death benefit.
The purchasers become the new owners and beneficiaries for the death benefits of these purchased policies. They also take over paying the premiums. This is a legitimate investment in the death of another person. The investor will pay the insured 20% to 80% of the face value of the policy depending on the age and health of the seller.
Over the years, life settlements have become a major niche business. Investor alliances or companies that represent investors evaluate and place bids on life insurance policies for sale. These are called life settlement providers. As a general rule, they are not interested in policies less than $100,000 in face value and would prefer much larger policies. On the other hand, investors will take smaller policies under certain conditions or aggregate the purchase of numerous smaller policies on the same person.
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