A life settlement refers to the sale of an existing insurance policy to a third party for a one-time cash payment. Payment is more than the surrender value, but less than the actual death benefit. After the sale, the purchaser becomes the policy's beneficiary and assumes payment of its premiums. By doing so, he or she receives the death benefit when the insured dies.

KEY TAKEAWAYS

• A life settlement refers to the sale of an existing insurance policy to a third party for a one-time cash payment.

• Payment is more than the surrender value, but less than the actual death benefit.

• The policy's purchaser becomes its beneficiary and assumes payment of its premiums, and receives the death benefit when the insured dies.

• Some of the reasons why people choose life settlements include retirement, unaffordable premiums, and emergencies.

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