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What is a life settlement?

Owners of insurance policies typically believe that they only have two options with regards to a policy that they no longer want or need: Either selling or “surrendering” the policy back to the issuing institution for whatever value the institutions assigns to the policy or simply letting the policy lapse. In the former case, the value assigned to the policy may be low or zero. In the latter case, the owner receives no benefits at all.

There is, however, a third option – a Life Settlement. A life settlement means that the policy is sold (or “assigned”) to another financial institution. That institution then becomes the policy holder and takes on the responsibility of paying the premiums. In exchange, the seller of the policy receives a lump sum payment and is no longer responsible for maintaining the policy.

Most people are not aware of this third option and simply end up losing the value of their policies. There is no reason for this, as a life settlement creates a win/win situation for both broker and policy holder. Some common reasons for policies becoming unwanted or unneeded are:

- Insurance no longer required by beneficiaries
- Policy may have been used to secure loans that are now repaid
- Corporate key executives may retire from the company
- A company may be sold or closed down
- Tax relief provided by the policy may no longer be needed

However, often the reason is simply the policy holder buying a different policy or becoming unable to maintain the premium payments. Most often, such cases end up with the policy owner receiving nothing in return for their years of premium payments. Life settlements provide a way to prevent this from happening.