Life settlements are US life insurance policies that are sold by elderly policy holders (average age at sale approx. 80 years) to investors. The seller of the policy receives a one off cash payment from the investor. This one off payment is on average substantially higher than the surrender value of the policy offered by the insurance company. The investor continues to service the policy (i.e. he continues to pay the premium payments) and in exchange receives the insurance benefits (face value).
The secondary market for life insurance policies offers an additional option to the owner of a policy which isn’t needed any more. The reasons why policies aren’t needed any more are manifold, e.g.:
- The initial reason for buying insurance does not exist any more (e.g. mortgage paid back, divorce, death of beneficiary etc.).
- The annual premiums are no longer affordable.
- An insured key person has left the company or has retired.