What is a Life Settlement?

I have seen many sites for Life Settlements but none explaining the basics. A Life Settlement or a Senior Settlement, as it sometimes called, is, in most states, a highly regulated sale of a life insurance policy by the owner to a 3rd party. Remember a life insurance policy is a legal property and the owner may do as he wishes with that property.

The 3rd party is usually a corporation or institutional investor of some sort. A large amount of money comes from European pension funds, but hedge funds and sometimes even other insurance companies purchase life insurance policies on the open market. Each of these "money groups" needs to know only two things to determine if they will offer on your policy.

The first thing that is needed is your Life Expectancy(LE). Life Expectancy is a function of both your age and your health. This number, usually expressed in months, is supplied with a median number of months and the 85% number of months. Basically, at median half of the people with your LE would have passed away and at 85%, 85% would have passed away. The Life Expectancy is usually figured using your medical records, thus it is personalized. An exam is not usually required.

The next piece of info needed is the premium to keep the policy in force to your life expectancy. Term policies will not be purchased as term insurance, they must be converted to a form of permanent insurance, usually at higher cost. This will allow the new owner to get a reasonable expectation of premium to keep the policy in force.

Once they have these two pieces of info it just boils down to math. Each of these money groups has their own investment objectives and if your policy fits they will make an offer. If it doesn't fit, they won't offer.

The statement that each "has their own investment objectives", should alert you to the need to present your case to as many money groups as possible. Look for future articles on that subject, so that you may "get it right".

The information in this post should serve as a guide for discussion with your insurance professional.