What Are Life Settlements? A Simple Guide to Turning a Policy into Cash

Many people buy life insurance when it makes perfect sense — kids at home, a mortgage, income to protect. Years later, life changes. Premiums rise, needs shift, and the policy that once fit perfectly may no longer serve your goals. A life settlement is a way to sell your life insurance policy for a lump-sum cash payment instead of letting it lapse or surrendering it for a small amount. This guide explains what life settlements are, how they work, who typically qualifies, and how to estimate what your policy could be worth.

What Is a Life Settlement?

A life settlement is the legal sale of your life insurance policy to a licensed buyer for a one-time cash payment. After the sale, the buyer becomes responsible for future premiums and eventually receives the death benefit. For seniors who no longer need or want their policy — or who can’t keep up with rising premiums — it can be a practical way to unlock value that would otherwise be lost.

If you’re curious how the process unfolds, explore our How It Works page for a friendly, step-by-step view.

Why People Consider Selling a Policy

• Premiums are too expensive: Costs can rise with age or changes in policy performance.
• Goals changed: The original need (mortgage, dependents) may no longer exist.
• Cash is more useful now: Health costs, retirement, or helping family today.
• A policy might lapse anyway: Selling can be better than receiving $0.

Want a quick sense of value before you go deeper? Try the Life Settlement Calculator.

How It Works (Step by Step)

1. Policy review: We gather details from your carrier to estimate market value — see the full How It Works guide.
2. Shopping your case: Competing offers are requested from licensed buyers.
3. Offer review: You compare options with guidance — no pressure, no obligation.
4. Secure closing: On acceptance, funds are disbursed and future premiums stop.

Who Typically Qualifies

• Age: Generally 65+ (younger may qualify with significant health changes)
• Coverage: $100,000+ in life insurance face amount
• Policy Type: Universal Life, Whole Life, or Convertible Term
• Health: A change since policy issue can increase value

Details here: Who Qualifies.

Lapse vs. Surrender vs. Life Settlement

Option	What Happens	Typical Outcome
Let It Lapse	Coverage ends after grace period; you may get $0.	$0 payout; policy ends.
Surrender	Carrier pays the policy’s cash surrender value (if any).	Usually modest; may be taxable.
Life Settlement	Sell the policy to a licensed buyer who takes over premiums.	Often higher than surrender value; lump-sum cash payment.

For a deeper comparison, read: Life Settlement vs. Surrender — Which Pays More?

What Drives Value (Plain English)

Buyers weigh what it costs to keep the policy in force versus the benefit it will pay down the road. Key factors:

• Age & health history: Older age or meaningful health changes can increase value.
• Policy type & flexibility: Universal Life, Whole Life, and Convertible Term are commonly considered.
• Face amount: Policies of $100,000+ are the usual starting point.
• Premiums: Lower ongoing premiums or flexible schedules help.
• Carrier & contract: Clear, stable contracts from reputable carriers are easier to price.

Not sure where your policy lands? Start with the calculator, then check Who Qualifies.

Two Real-World Scenarios

Maria, 74 (Universal Life, $250,000): Premiums climbed, and surrender value was modest. After shopping her policy, she accepted a settlement that delivered a larger lump sum, which helped cover medical expenses and fund family travel she’d postponed for years.

James, 70 (Term Policy, $150,000): He assumed his policy was worthless because it was set to expire soon. After reviewing it, he learned it was convertible — meaning it could be changed into a permanent policy and then sold. That discovery allowed him to receive a lump-sum payout instead of letting the coverage lapse for nothing.

Common Myths & Tax Notes

• Myth: “Only very large policies qualify.”
  Reality: Policies starting around $100,000 can be considered.
• Myth: “It’s the same as surrendering.”
  Reality: A settlement is a sale; proceeds can be higher than surrender value.
• Myth: “It always takes forever.”
  Reality: Many cases close in weeks — see How It Works.

Taxes: Parts of a life settlement may be taxable depending on your basis and gain. For personal guidance, consult a qualified tax advisor and browse our FAQ.

Where to Start

If you’re weighing options, don’t wait for a policy to lapse. Get a quick estimate with the Life Settlement Calculator, review How It Works and Who Qualifies, or send a question via the Contact page. You can also explore more articles on the Lifestone Settlements Blog.

Quick FAQ

What exactly do I sell in a life settlement?
You sell the ownership and beneficiary rights of your life insurance policy to a licensed buyer for a lump-sum cash payment.

Does selling mean my family loses everything?
Selling transfers the death benefit to the buyer, but you receive cash now. If you were likely to lapse or surrender anyway, a settlement may be the better outcome. Compare options first.

What kinds of policies qualify?
Universal Life, Whole Life, and Convertible Term are common. Coverage of $100,000+ is typical.

How long does it take?
Many cases close in weeks, depending on how quickly carriers provide information and you review offers. See How It Works.