DEFINITION of 'Life Settlement'

The selling of one's life insurance policy to a third party for a one time cash payment. The purchaser then becomes the beneficiary of the policy and begins paying the premiums. Typically the purchaser is an experienced institutional investor, and policies will have face amounts in excess of $250,000.

A life settlement is similar to a "viatical settlement".

BREAKING DOWN 'Life Settlement'

Life settlements are usually only done when the insured person doesn't have a known life-threatening illness. They are often done with "key individual" insurance policies held by companies on executives who no longer work there; the company has a chance to cash out on a policy that was previously illiquid.

Sometimes people outgrow their need for a specific life insurance policy, and a life settlement may offer the chance to gain more than the policy's cash surrender value.

RELATED TERMS
  1. Transferable Insurance Policies ...

    A life insurance policy which allows for the transferable assignment ...
  2. Adjustable Life Insurance

    A type of life insurance that combines features of term and whole ...
  3. Key Person Insurance

    A life insurance policy that a company purchases on a key executive's ...
  4. Variable Life Insurance Policy

    A form of permanent life insurance, Variable life insurance provides ...
  5. Universal Life Insurance

    A type of flexible permanent life insurance offering the low-cost ...
  6. Term Life Insurance

    A policy with a set duration limit on the coverage period. Once ...
Related Articles
  1. Managing Wealth

    Profit From Unwanted Life Policies With Life Settlement

    With a life settlement you could cash in on your policy money now.
  2. Managing Wealth

    An Introduction To Life Settlements

    A life settlement is the trading of a life insurance policy under specific circumstances. Learn what it's all about.
  3. Financial Advisor

    How Life Insurance Settlements Are Evolving

    The life insurance industry marches forward by offering more ways that consumers can access the death benefits in their policies. Here's one of the newest.
  4. Investing

    Making A Living On Death Bonds

    Find out if these macabre bonds are just the new blood your portfolio needs.
  5. Insurance

    Life Insurance: How To Get the Most Out Of Your Policy

    There are many benefits to owning a life insurance policy - if you get the right one for you.
  6. Insurance

    What Is the Best Age to Get Life Insurance?

    Learn about the optimal time for purchasing personal life insurance and why delaying the buying decision may have costly consequences.
  7. Financial Advisor

    Permanent Life Policies: Whole Vs. Universal

    If you're looking for life-long security, choosing between these two is the key.
  8. Insurance

    How Cash Value Builds In A Life Insurance Policy

    If you have permanent life insurance, more of your insurance premium goes to cash value in the early years of your policy: a step-by-step guide.
  9. Insurance

    What's Better: Whole Life or Term Insurance?

    Life insurance can be a difficult decision to make, especially for a young adult. Here's a look at the benefits and costs of getting whole life insurance.
Hot Definitions
  1. Ex-Dividend

    A classification of trading shares when a declared dividend belongs to the seller rather than the buyer. A stock will be ...
  2. Debt Security

    Any debt instrument that can be bought or sold between two parties and has basic terms defined, such as notional amount (amount ...
  3. Taxable Income

    Taxable income is described as gross income or adjusted gross income minus any deductions, exemptions or other adjustments ...
  4. Chartered Financial Analyst - CFA

    A professional designation given by the CFA Institute (formerly AIMR) that measures the competence and integrity of financial ...
  5. Initial Coin Offering (ICO)

    An Initial Coin Offering (ICO) is an unregulated means by which funds are raised for a new cryptocurrency venture.
  6. The Bernie Madoff Story

    Bernie Madoff ran a multibillion-dollar Ponzi scheme that is considered the largest financial fraud of all time.
Trading Center