What is a Life Insurance Settlement?

Written by: Lauren Ward | Updated January 24, 2024

Do you find that your life insurance policy is no longer affordable? Maybe you’ve decided that you just don’t want it anymore. If you’ve been considering settling your life insurance, here’s what you need to know.

First and foremost, it’s important to clarify that a life insurance settlement is not the payout any beneficiaries receive after you die. Living people with a life insurance policy they no longer want or can afford take out life insurance settlements by selling them to a third-party for a cash value.

According to the Life Insurance Settlement Association, a life insurance settlement is the sale of a life insurance policy to a third-party for a cash value. The total is less than the death benefit amount and actual face value but more than the cash surrender value.

What is a cash surrender value on a life insurance policy?

The “cash surrender value” on a life insurance policy is the amount of money the insurance provider will pay to a policyholder before the conditions of their insurance is met.

The savings of a life insurance policy comprise the majority of its surrender value. In the early stages of a life insurance policy, the savings are usually much smaller than the premiums being paid, which means your actual cash value of your policy could be lower than the insured value. Surrendering the cash value of a life insurance policy does lower the death benefit, so it’s important to understand exactly how much money you’ve saved and how much you owe on your life insurance before you settle.

How does a life insurance settlement work?

There are ways to receive money from your life insurance that don’t involve canceling the policy. However, it is possible to take out a life insurance settlement and stop paying premiums. A life insurance settlement sells your policy to a third-party firm, which agrees to pay you more than the cash surrender value of your loan but less than the full amount.

There are two key players in a life insurance settlement: providers and brokers. A settlement broker will help you understand the financial implications of taking out a life insurance settlement. They crunch the numbers and do all the heavy lifting to present you with a breakdown of the most important figures.

What are the pros and cons?

A life insurance settlement can typically land you anywhere from 10% to 70% of the loan’s total value. They are profitable for sellers and can get you quick access to money if you really need it.

The risks include legality, as every state has its own laws regarding life insurance settlements, unfair pricing, and fraudulent brokers and vendors.

If you’re taking out a life insurance settlement because you’re nearing the end of your life, you may qualify for accelerated death benefits. Instead of a settlement, accelerated death benefits are partial benefits given by your provider prior to your death. These benefits can be highly profitable and are worth exploring if you’ve been diagnosed with a terminal illness or other serious disease and need to pay for expensive medical and care costs.

Is a life insurance settlement right for me?

You shouldn’t rush to settle your life insurance if you don’t have to. If you have received a startling diagnosis, speak to your provider about accelerated benefits or other possible early pay-outs that may be a better option. A life insurance settlement isn’t a financial choice to make overnight. If you are only doing so to get rid of your policy, make sure you speak with a reputable life insurance settlement broker and get all the facts before making a final decision.

Insurance Companies

AIG Insurance
Alliant Mesirow Financial
American Equity Investment Life Holding Company
American National Insurance Company
Ametros Financial
New York Life
Pacific Life
McKellar Structured Settlements Inc.
Wahlstrom & Associates
Voya Financial
USAA Life Insurance Company
UBS Financial Services Inc.
TIAA-CREF
The Settlement Alliance, LLC
The Pension Company, Inc.
The McNay Group
Summit Structured Settlements
Structures Settlement Solutions
Structured Financial Associates, Inc.
Prudential Financial, Inc.
Pat Farber’s Structured Settlement
NFP Structured Settlements
Mutual of Omaha
Millennium Settlements
Midland National Life
Metropolitan Life Insurance Co.
Lincoln Financial Group
Liberty Mutual Insurance
John Hancock
JCR Settlements, LLC
James E. Logan & Associates
Holcomb Smith & Associated Inc.
Genworth Financial
Fidelity Insurance Network
Delta Settlements
Creative Capital Inc.
Cornerstone Settlement Services, Inc.
Chronovo, Inc.
Capital Planning
Brant Hickey & Associates
Bradford Settlement Company
Berkshire Hathaway Life Insurance Company
Baxter Structures
Atlas Settlement Group, Inc.
Arcadia Settlements Group
JMW Settlements LLC