A life settlement is the sale of an existing insurance policy to a third party for a cash payment. Payment is more than the cash surrender value, but less than the actual death benefit. After the sale, the purchaser becomes the policy’s owner, beneficiary, assuming responsibility for all of it’s premium payments.
In its simplest terms, the secondary market for life insurance means that policyowners no longer have to accept the insurance carriers cash surrender value as the true value of the policy. By selling an underperforming or unneeded life insurance policy in a competitive marketplace, the policy owner can receive the actual market value of the policy which may be substantially higher than the current cash surrender value. Like other assets, life insurance can now be valued in an open marketplace.