• Sell your policy in exchange for cash through a life settlement. Life settlements involve selling your life insurance policy to someone else, who pays you more than the policy’s cash surrender value, but less
than the death benefit. The third party who buys your policy takes over your premium payments, and continues to make them until you die. Then they receive the death benefit.

According to one study, people who sold a life insurance policy in a life settlement deal received about 20% of the policy’s face value, which is more than the 3% to 5% they’d have received from a cash surrender.

The third party who buys your policy is not an individual person (which might make you wonder if he had an interest in helping you meet an untimely demise.) Rather, the buyer is a life settlement company, also called a provider, who purchases your policy and groups it with other policies to make a confidential asset portfolio. Your personal information is not shared with investors in the portfolio.

History of Life Settlements

Life settlements are an offshoot of the viatical settlement that was born during the AIDS crisis in the 1980s. At that time, AIDS patients had short life expectancies, and some opted to tap into the value of
their life insurance before they died. The patients — who were estimated to have less than two years to live — sold their existing life insurance policies to a third party, who took over the premiums, and
gave the patients money up front. When the patients died, the viatical buyers received the policies’ death benefits.

Today, medical advances have allowed people to live with AIDS instead of die from it. The practice of viatical settlements has morphed into life settlements, which are similar in principle to viatical settlements — a third party takes over your premiums, gives you cash, and gets the death benefit of
your policy when you die. Life settlements are for people who generally at least 65 and not terminally or chronically ill.

Life settlement buyers are usually most interested in universal life policies, because they tend to be more flexible than other types of policies. Buyers also can be interested in convertible term life
policies, which are policies that you have the option of converting to universal or whole life policies. A regular term policy might be eligible for a life settlement if the term of the policy is at least 2.5 times the
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