•         A Life Settlement is the transfer of the beneficial interest (the death benefit) of a life insurance policy by the holder of the policy to any third party. The holder may be the insured person or a trust that holds the beneficial interest in the policy or any another person or entity. 

•         A Life Settlement is not the same as a Viatical Settlement, although they operate similarly. The Life Settlement market evolved from Viatical Settlements, which began in the 1980s when terminally ill insureds sold their policies in order to pay for medical expenses. Viatical Settlements became unattractive due to fraud some corrupt activities and the advance of HIV medications.

•         Today the Life Settlement market provides a policy holder, whether the original policy owner or an unrelated third party, the opportunity to sell the policy to third party purchasers for more than the cash amount that the insurance company would pay on the surrender of the policy (called the “cash surrender value” ).

•       The reasons why an insured might want to sell a policy are many, including:

–     Need for cash for other purposes
–     Need for the policy no longer exists (e.g., children’s education paid off)
–     Premium payments have become too burdensome
–     Policy owner seeks a better investment return
–     Under-performing policy
–     Estate taxes have decreased
–     Divorce or Bankruptcy
–     A change in tax laws
–     Key-Man corporate need disappears