A life settlement is the term given to both a transaction in which an investor buys a life insurance policy from its original owner, and to the asset itself following the completion of the settlement. The investor assumes the responsibility for paying premiums on the policy until the policy matures, at which time it receives the policy’s death benefit.
Geography: The term life settlement is used to describe the U.S. market specifically, which is the largest secondary life market globally due to the size of its insured population coupled with favourable property, tax, and contestability laws. There are similar, smaller markets in Germany and the U.K.
Process: An individual, company, or trust with a previously issued, in-force life insurance policy, sells it, through a broker or otherwise, typically for a lump sum payment, to a licensed provider, which either buys the policy for its own account or on behalf of an investor.
Risk exposure: Life settlement investors are exposed to longevity risk.