Life settlements allow policyholders - usually older adults with sizeable policies and limited life expectancy - to sell a life insurance policy to a third-party investor for cash. The buyer pays future premiums and collects the death benefit. Sellers should compare offers, work with licensed professionals, and consult tax and legal advisors because proceeds may be taxable and can affect eligibility for means-tested benefits.

What is a life settlement?

A life settlement is the sale of an existing life insurance policy to a third party for a one-time cash payment. The buyer pays the remaining premiums, becomes the policy's beneficiary, and collects the death benefit when the insured dies. Viatical settlements are similar but usually involve terminally ill policyholders who sell earlier in life.

Who uses life settlements and why?

Seniors who no longer need or can no longer afford their life insurance often consider life settlements. Common reasons include:

  • Paying down high-interest debt quickly.
  • Funding retirement living expenses or long-term care.
  • Leaving funds for an immediate investment or a major expense.
  • Extracting value from a policy that would otherwise lapse.

Typical qualification criteria

Buyers usually prefer policies that meet certain criteria: older insureds, shorter life expectancy, and a relatively large face amount. Many buyers focus on policies with face values of roughly $100,000 or more, and on insureds who are in their 60s or older with a life expectancy that buyers estimate in the low- to mid-teens.

Viatical settlements typically apply when the insured has a terminal diagnosis with a much shorter prognosis (often measured in months). 1

How the process works

  1. Contact a licensed life settlement broker or company. They will help gather the policy and medical records.
  1. The buyer underwrites the policy using medical and financial information to estimate life expectancy and value.
  1. The buyer offers a lump sum. If you accept, both parties complete paperwork and the sale closes.
Transactions can take weeks to months. Expect medical underwriting, third-party offers, and escrow or trustee arrangements.

Risks, costs and tax/benefit implications

A life settlement can improve cash flow, but it can reduce estate value and may affect eligibility for need-based programs such as Medicaid. Proceeds may be partially taxable depending on the policy basis and state rules. Always consult a qualified tax advisor and an attorney before selling. 2

Key tips before you sell

  • Get quotes from multiple licensed brokers or buyers.
  • Ask for a net-proceeds estimate and breakdown of fees.
  • Confirm licensing and check state regulator or consumer protection resources.
  • Talk to your financial, tax and legal advisors about alternatives such as policy loans or accelerated death benefits.
Life settlements are a legitimate option for some policyholders, but they carry trade-offs. Understand the process, shop offers, and verify how a sale fits your retirement, tax and benefits situation.
  1. Confirm typical minimum policy face amounts that life settlement buyers currently require (commonly cited around $100,000).
  2. Verify commonly used age and life-expectancy thresholds for life settlement eligibility (e.g., 60 vs 65 and life expectancy horizons of ~10-15 years).
  3. Confirm standard clinical prognosis thresholds that distinguish viatical settlements (e.g., terminal prognosis measured in months) and current tax/benefits guidance on how settlement proceeds affect Medicaid.

FAQs about Life Settlements

How much can I get from a life settlement?
Offers vary widely based on age, health, policy size, premium costs and market conditions. Buyers typically pay a fraction of the death benefit; get multiple offers and a net-proceeds estimate to compare.
Will selling my policy affect Medicaid or other benefits?
Yes - large lump-sum proceeds can affect eligibility for need-based programs such as Medicaid. Speak with an elder-law attorney or benefits specialist before selling.
How long does a life settlement take?
Most transactions take several weeks to a few months because of medical underwriting and documentation. Timelines vary by buyer and complexity.
What’s the difference between a viatical settlement and a life settlement?
A viatical settlement generally involves a terminally ill insured with a much shorter life expectancy; life settlements typically involve older insureds who are not terminal but have limited life expectancies.
Do I need a broker?
A licensed broker can solicit multiple offers and help navigate contracts and licensing questions. You may also sell directly to a buyer, but compare offers and check credentials.

News about Life Settlements

How life insurance settlements could bring liquidity, tax savings - financial-planning.com [Visit Site | Read More]

Q Life Settlements Supports Amplification of Life Settlement Awareness at Upcoming LISA Conference - PR Newswire [Visit Site | Read More]

From ghost towns to growing settlements: Armenia’s village life - New Eastern Europe [Visit Site | Read More]

Life Settlements Hedge Funds Are Gaining Acceptance Among Institutional Investors - Seeking Alpha [Visit Site | Read More]

Dynasty and Abacus Enter Equity Swap Agreement - Wealth Management [Visit Site | Read More]

Cashing Out explores the messy world of AIDS viatical settlements - attitude.co.uk [Visit Site | Read More]

Valmark Financial Group Leads Consumer-First Innovation in Life Settlements With Streamlined Policy Pricing and Expanded Market Access to Maximize Client Value - Business Wire [Visit Site | Read More]