Education
What Is a Life Settlement?
A plain-language guide to the secondary market for life insurance — what it is, how it works, why it's regulated, and what protections exist for you as the seller.
The Simple Explanation
A life settlement is when you sell your life insurance policy to a third-party buyer — usually an institutional investor — in exchange for a cash payment. The buyer takes over your premium payments and eventually collects the death benefit when the insured passes away.
Think of it like selling your house. Your house has value whether or not you sell it — but when you do sell, you receive cash you can use right now. A life insurance policy works the same way. It has a value in the marketplace that is often much larger than what your insurance company would give you.
"Life settlements allow policyholders to realize the full market value of an asset they've spent years paying into — rather than surrendering it to their insurance company for a fraction of its worth."
Life Settlement vs. Surrendering Your Policy
When you surrender a policy, your insurance company pays you the cash surrender value — typically a small percentage of the death benefit, often 10–20%. That's it. The company keeps the rest.
In a life settlement, your policy enters a competitive marketplace. Multiple buyers bid for it, and you receive significantly more — on average, about 4 times the cash surrender value.
Is This Legal? How Is It Regulated?
Yes — life settlements are completely legal and are a well-established financial transaction in the United States. Life settlements are regulated by state insurance departments in 43 states, covering the vast majority of the U.S. population.
State regulation includes requirements for licensed brokers, mandatory disclosure of transaction details, anti-fraud protections, and a required "rescission period" — typically 15–30 days after closing — during which you can cancel the sale and get your policy back if you change your mind.
What Does "Fiduciary Broker" Mean?
A fiduciary is legally required to act in your best interest — not their own, and not the buyer's. Citizens Life Group works with fiduciary-licensed life settlement brokers who represent you, the seller.
This is different from working directly with a life settlement provider (buyer). A buyer's goal is to pay you as little as possible. Our goal is the opposite: to shop your policy to multiple buyers and get you the highest possible offer.
Why Do Seniors Sell Their Life Insurance Policies?
Premiums are no longer affordable
Rising premiums can put a strain on a fixed retirement income. A life settlement eliminates premium payments and puts cash in your pocket.
The coverage is no longer needed
Children are grown, the mortgage is paid off, or a spouse has passed. The original purpose of the policy no longer applies.
Need cash for retirement living
Extra funds can be used for travel, home improvements, supplementing retirement income, or simply enjoying life.
Need cash for medical expenses
A health event can create unexpected expenses. A life settlement can provide significant liquidity quickly.
Estate planning changes
When estate plans change, beneficiaries change, or financial priorities shift, a policy that once made sense may no longer fit.
Better alternatives exist
When an advisor identifies a different financial product that better serves the client's current needs, the old policy can be sold.
Watch: Life Settlements Explained
A quick overview of how life settlements work, who qualifies, and why selling your policy could be worth significantly more than surrendering it.
Frequently Asked Questions
Is selling my life insurance policy the same as a viatical settlement?
No. A viatical settlement involves a terminally ill person (typically with a life expectancy under 2 years) and has different tax treatment and rules. A life settlement is for seniors who are not terminally ill. Both involve selling a life insurance policy, but they are distinct transactions.
Will my family know I sold my policy?
You are under no obligation to disclose the sale to your beneficiaries, though it may be a good idea to discuss it with them. Your broker and the buyer are required to keep your personal information confidential.
What happens to the death benefit?
When you sell the policy, the buyer becomes the new policy owner and beneficiary. When the insured passes away, the buyer receives the death benefit. Your family will not receive a death benefit from the sold policy.
Are life settlement proceeds taxable?
Life settlement proceeds may be subject to income tax, depending on your cost basis in the policy. We strongly recommend consulting a tax professional before completing a life settlement. Citizens Life Group does not provide tax advice.
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