What does "life settlement" refer to?

A "life settlement" refers to the sale of a life insurance policy by the policyholder to a third party for a value that is greater than the policy’s surrender value but less than the death benefit. This financial transaction allows the policyholder, often someone who no longer needs or wants their life insurance, to access cash while still alive. It is particularly beneficial for policyholders who might be facing health issues or financial challenges, enabling them to monetize an asset that otherwise would not provide value until death.

In contrast, options describing a loan program, a new type of life insurance policy, or a government program do not accurately capture the essence of life settlements, which are primarily about transferring ownership of an existing life insurance policy for immediate financial benefit. Understanding the specifics of life settlements can provide essential insights into financial planning and the options available to individuals with life insurance policies.