Life settlements overview

A life settlement is the sale of an existing life insurance policy to a third party for an amount greater than its cash surrender value, if any, but less than its face amount. The seller transfers ownership of the policy to the buyer in exchange for an immediate cash payment (at times, the seller may also retain a portion of the death benefit). In turn, the buyer of the policy pays all future premiums to keep coverage in force and then receives the net death benefit when the insured passes away.

The life settlement industry (or secondary market for life insurance) dates back more than a century in the United States, at which time the Supreme Court concluded life insurance is personal property that may be sold or assigned not unlike other assets. Even though the legal basis for life settlements was determined long ago, the industry has taken shape only during the past couple of decades.

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