Life Settlement Training Hub

8 Questions Partners Ask About Life Settlements

Every year, more than 2.5 million seniors lapse or surrender life insurance policies—often walking away with little or nothing. Many simply don’t realize there’s another option. That includes your clients… or their parents. A life insurance policy is a financial asset. And like other assets, it can be sold. That sale is called a life settlement.

In a life settlement, a third-party buyer—typically an institutional investor—purchases the policy for a lump sum of cash. They take over the premiums, become the new owner, and ultimately receive the death benefit. The policyholder receives immediate value, often far exceeding the surrender value.

Yet despite increased awareness, life settlements remain misunderstood. Let’s clarify what you need to know:

1. Why would someone sell their policy?

There are countless reasons. The original need for the policy may have changed—a spouse passed, the mortgage is paid off, the kids are grown, a business was sold. Or maybe premiums have become a financial burden. Sometimes, clients want to repurpose their policy to cover long-term care, retirement, or medical expenses.What they often don’t realize: lapsing or surrendering could mean leaving tens or even hundreds of thousands of dollars on the table.

2. What types of policies are eligible?

Almost any type of life insurance can qualify:

• Universal life (most common)

• Convertible term (especially attractive to buyers)

• Whole life, second-to-die, first-to-die, and group policies

Note: Convertible term policies are highly valuable, even for younger or healthier clients. Non-convertible terms may still qualify if the client has significant health issues.

3. How much can a client receive?

Offers vary based on:

• Premiums: Lower future costs = higher value

• Life expectancy: Shorter expectancy = higher offer

• Policy size: Larger face values yield more valueIn 2023, life settlements averaged 6x more than cash surrender value.

4. What size policies can be sold?

• Minimum: Usually $100,000 in face value

• Maximum: No cap

• Some smaller policies can qualify depending on the client’s health.

5. Does the client need to be terminally ill?

No. Health matters, but terminal illness is not required.

• Seniors in their 70s and 80s can qualify even if relatively healthy.

• Younger clients (50s) typically need more serious health conditions.

• Convertible term policies can increase eligibility for healthier individuals.

6. Are life settlements legal?

Absolutely. A 1911 Supreme Court case (Grigsby v. Russell) confirmed that a life insurance policy is personal property and can be sold. Today, the industry is highly regulated:

• Buyers are licensed by state DOIs

• Contracts use DOI-approved languageB

• Beneficiaries and physicians provide sign-offs

• Full transparency and compliance is required

7. How should I talk to clients about this?

You don’t need to be a life insurance expert or the original writing agent. You just need to

• :Let clients know this option exists

• Share an article, a short email, or a newsletter mention

• Talk to your network—This is an opportunity to help your existing clients and grow your business while helping others earn on referrals

Remember: buyers advertising on TV want clients to call them directly—so they can offer less and cut you out. Don’t let that happen. You bring more value when you market the policy to multiple buyers. That’s what we do as a fiduciary broker.

8. What’s the commission structure?

Life settlements work more like real estate than traditional insurance.

• Commissions are negotiable, not fixed

* Capped at 1/3 of the offer or 8% of face value (whichever is less)

• Fully disclosed to the client in the sale agreement

The more we secure for your client, the more value—and commission—you generate. Everyone wins.

A Key Comparison for Your Clients

Know the key differences so you can match the right solution to the right client—fast, clear, and confidently.

	Life Settlement $450 per seat per year	Viatical Settlement
Who Qualifies	Seniors (typically age 65+) with unwanted or unneeded policies	Individuals diagnosed with a terminal or chronic illness
Health Requirement	No terminal illness required	Must have a life expectancy usually under 24 months
Payout Range	4x–12x more than cash surrender value	Often higher payout due to shorter life expectancy
Use of Proceeds	Retirement, long-term care, other financial needs, other	Medical bills, living costs, quality of life during illness
Tax Implications	May be taxable depending on gain	May be tax-free if proceeds used for medical or end-of-life care
Regulation	Regulated in most states with consumer protections	Also regulated, often with additional oversight for health status
Ownership Transfer	Policy sold to investor, who takes over premiums & benefits	Same structure—buyer becomes beneficiary and manages the policy
Emotional Considerations	Often a strategic financial move	Often a last resort financial lifeline
Common Policy Types	Universal life, whole life, convertible term	Any type, as long as value and timeline are appropriate

Life Settlement Overview

Watch, listen, and learn with expert-led videos covering everything you need to know about life settlements.

Life Settlement Overview

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FAQ

Get answers to the most common questions about life settlements.

What is a life settlement?

A life settlement is the sale of an existing life insurance policy to a third party for a lump sum cash payment. The buyer assumes responsibility for the policy, including future premiums, and becomes the beneficiary upon the policyholder's death.

How do I get paid for referring clients for life settlements?

When you bring in a client, our team guides them through the entire process from start to finish. Once the policy is sold, you receive a transparent payout percentage based on the settlement amount—no hidden fees, no guesswork.

How do I get started?

Simply connect with our team. We’ll walk you through the process and provide additional free training so you can start offering life settlements today.

Who qualifies for a life settlement?

Your clients could qualify for a life insurance settlement if:

• Their policy is valued at $100,000 or more
• They are 65 years or older
• They are business owners in transition
• They are facing health challenges

What are the benefits of a life settlement?

Life settlements offer policyholders an opportunity to convert their life insurance policy into a lump sum of cash, which can be used for medical expenses, retirement income, debt reduction, or other financial needs. It can be a viable option if a policyholder no longer needs or can afford their policy.

How is the value of a life settlement determined?

The value of a life settlement is determined based on several factors, including the policy’s death benefit, the insured’s life expectancy, the premiums required to maintain the policy, and the policy's cash value.

What happens after the life settlement is completed?

Once the life settlement is finalized, the buyer becomes the new owner and beneficiary of the policy. The policyholder receives the agreed-upon lump sum payment, and no further premiums are required from the policyholder.

How long does it take to complete a life settlement?

The process of completing a life settlement typically takes 6 to 12 weeks, but it can vary depending on the complexity of the policy and the time needed to evaluate the offer.

How do life settlements benefit policyholders?

Life settlements provide a lump sum cash payment to policyholders who may no longer need their life insurance policy. This cash can be used for a variety of purposes, such as medical expenses, retirement income, or paying off debts.

Are life settlement proceeds taxable?

The tax implications of a life settlement vary. The proceeds may be subject to income tax, depending on the policy's cost basis, amount received, health of the seller and what the funds are used for.

Policyholders should consult with a tax advisor to understand the potential tax impact.

Can I reverse a life settlement once it's completed?

No, once a life settlement is finalized, it cannot be undone. It’s important for policyholders to fully understand their options before proceeding with the sale of their life insurance policy.

Once a change in ownership is confirmed, the policyholder has a 15 day right to recession. Compensation is paid after the recession period, and at that point cannot be reversed.

What are the costs involved in a life settlement?

There are typically no out-of-pocket costs to the policyholder. However, the broker or life settlement provider may charge a commission or fee, which is typically paid out of the settlement amount. The policyholder should always understand the fee structure before proceeding.

Will I still have to pay premiums after selling my life insurance policy?

No, once the policy is sold in a life settlement, the buyer assumes responsibility for paying the premiums. The policyholder is relieved of any future financial obligations related to the policy.

How does a life settlement compare to surrendering a policy to the insurance company?

Surrendering a policy to the insurance company typically results in a lower payout, as the insurance company will offer the policyholder only the policy's cash value. A life settlement often provides a higher payout, as it involves selling the policy to a third party who is willing to take on the policy's premiums in exchange for the death benefit.

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