The short answer
A life settlement is the sale of an existing life insurance policy to a third party for a lump sum that is more than the policy's cash surrender value but less than its death benefit. The buyer takes over the premiums and collects the death benefit later. For a senior with a policy they no longer need or can no longer afford, a settlement can turn a lapsing policy into cash — money most people do not realize their unwanted policy could be worth.
So a life settlement is a way to get value from a policy you were about to drop, rather than surrendering it for little or letting it lapse for nothing.
Who qualifies and what it is worth
Life settlements generally suit older policyowners, often 65 or above, with a policy of meaningful size that they no longer need. The offer depends on your age, health, the policy type, and the premiums, and it will be less than the death benefit because the buyer must pay premiums and wait. A related option, a viatical settlement, applies to the terminally ill and can pay more. Our life insurance overview covers the product basics.
The value hinges on the same factors insurers weigh, so offers vary and shopping matters.
Alternatives to consider first
Before selling, weigh the alternatives: you might keep the policy if your family still needs it, use the cash value through a loan or partial withdrawal, or reduce the death benefit to lower the premium. Selling also has a tax angle, since part of the proceeds can be taxable, and it means giving up the coverage entirely. This is a decision to make carefully, ideally with a professional. If you are thinking of dropping a policy, explore a settlement before letting it lapse for nothing.
The takeaway: a life settlement can unlock cash from an unwanted policy, but compare it against keeping, borrowing, or reducing the policy first — and mind the taxes.
Frequently Asked Questions
What is a life settlement?
The sale of an existing life insurance policy to a third party for a lump sum larger than the cash surrender value but less than the death benefit. The buyer takes over premiums and collects the benefit later.
Who qualifies for a life settlement?
Generally older policyowners, often 65 or above, with a meaningful policy they no longer need. The offer depends on age, health, policy type, and premiums. The terminally ill may use a viatical settlement instead.
Should I sell my life insurance policy?
Only after weighing alternatives — keeping it if the family still needs it, borrowing against cash value, or reducing the benefit to lower the premium. Part of the proceeds may be taxable, and you give up the coverage.
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