About Life Settlements

A life settlement involves converting a life insurance policy into cash, an annuity, a better life insurance policy, a long-term care policy or a combination thereof.

Prior to the establishment of the secondary market for life settlements, a policyholder could only exercise one of two liquidation options concerning his/her policy: let it lapse to avoid future premium payments or surrender it for the cash surrender value. Usually the cash surrender value represents just a small percentage of premiums paid. In most cases neither option is attractive.

In the secondary market for life insurance, the value of a life insurance policy is computed based on its face value discounted for life expectancy and future premiums. In many situations, the secondary market value ranges from 2 to 5 times the cash surrender value or somewhere in the neighborhood of 20-60% of the face value. There are numerous factors that influence the current value.

The role of the life settlement broker is to package the policy with all the additional information required for evaluation and then market the package to the buyers ("providers") that are most receptive to the type, duration and terms of the specific policy. Providers in this marketplace include some of the largest corporations in the world (Merrill Lynch, HSBC, Citigroup, Chase, GE Capital, AIG, Credit Suisse, Deutsche Bank, Berkshire Hathaway, etc). The life settlement broker is responsible for locating the provider willing to pay the most for the client's policy.

Almost any type of policy can be settled in the secondary market: Universal Life, Survivorship, Whole Life, Variable, Key Person, Convertible Term, Group, etc. The policies most likely to find a settlement include those where the insured is 65 years or older, has a life expectancy of no more than 18 years and the policy has a face value of at least $250,000.