Life Settlement Definition

A life settlement is the payment received when a life insurance customer sells his or her life insurance policy. Seniors may find themselves in need of income to pay for their expenses or health care, but with no way to pay those costs as their regular income is fixed, via retirement payouts or Social Security. In addition, if a senior finds they can no longer afford to make payments to prevent the policy from lapsing, he or she may choose to sell their policy for a life settlement and then put the cash away in a bank account or secured investment for the intended beneficiary of the original life insurance policy. Selling a life insurance policy provides the senior with a lump sum payout that is much more than its stated cash surrender payout value but less than its end-of-life redemption value. To sell a life insurance policy, generally a senior would need to contact a broker who would negotiate the purchase of the settlement to his third-party employer in exchange for the life settlement. Generally there are requirements for sale, such as policy face value, age of the policyholder and length of time that the policy has been held.

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