Just like any personal property, a life insurance policy can be sold or “settled”. This is called a life settlement.
The idea is to sell an existing life insurance policy to a third party for more than its cash surrender value but less than its net death benefit. In a life settlement transaction, the policy’s owner transfers ownership of the policy to the buyer in exchange for an immediate cash payment and, in some instances, a reduced interest in the death benefit for the policy’s beneficiaries. The buyer of the policy pays all future premium payments and receives the death benefit upon the death of the insured (when the policy matures).
A life settlement is different from a viatical settlement in that the individual insured on the policy has a longer life expectancy. In a viatical settlement, the life expectancy of the insured is 24 months or less.
Many American seniors—typically those 70 years of age or older—are discovering that life insurance policies that once seemed appropriate, have become unaffordable or no longer meet their needs.
As a result, many of these seniors lapse or surrender their policy back to the insurance carrier. In fact, policies with more than $100 billion of face value are lapsed by seniors over age 65 each year, mostly because they are unaware an alternative may be available – including the sale of the policy.
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