What is a Life Settlement for a Life Insurance Policy?
A life settlement refers to the amount received when selling a life insurance policy. Life insurance companies evaluate premiums based on each individual’s risk. They can, therefore, not allow a life insurance policy to transfer from one person to another. But they can allow the transfer of the benefits.
That is, an insured person may sell their benefits to another person for a settlement amount. Upon the insured’s death, the proceeds will then go to the buyer instead of the beneficiaries. The insured assigns ownership of the policy to the buyer or changes the beneficiary of the policy to the buyer.
The settlement amount is usually higher than the policy’s current cash value (or cash surrender value) but less than the expected cash benefit to be paid out upon the death of the policy owner. An insured may sell his or her policy if he or she is need of money.
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