Life settlements are financial transactions in which a policy owner possessing an unneeded or unwanted life insurance policy sells the policy to a third party for more than the cash value offered by the life insurance company. The purchaser then becomes the new beneficiary of the policy at maturation and is responsible for all subsequent premium payments after the policy acquisition.

Life settlements are typically offered to high net worth policy owners, aged 65 or older, by financial advisors or accountants. The option is perfect for those who are possess duplicate policies or an unneeded policy as it allows them to convert it into much needed cash while avoiding any future premium payment responsibilities. The strategy is especially effective for term life insurance policies that are set to expire anyway – this option may provide you with “free” money.

Do all life insurance policies allow this? Well, a supreme court ruling (Grigsby v. Russell) established a policy owner’s right to transfer an insurance policy. The argument was that since life insurance possessed all the ordinary characteristics of property, it should be considered an asset that a policy owner can transfer without limitation. The process became streamlined in 2001 when the National Association of Insurance Commissioners (NAIC) released the Viatical Settlements Model Act, which defined guidelines for avoiding fraud and ensuring sound business practices.

In general, you should consider life settlements if: Your policy is no longer needed; investment projections have not materialized; premiums are too expensive; medical or longterm care is required; charitable or family giving is desired; employment status changes; bankruptcy; and any other instance where it may be advisable. It is important to consult a financial advisor before making any decisions.