Education
Life Settlement Glossary
Plain-language definitions of 47 life settlement and life insurance terms, reviewed by a licensed life settlement broker.
(321) 270-0279Life settlements and life insurance come with a lot of specialized vocabulary. We've put together this glossary to help you understand the key terms in plain, simple language. If you have a question about a term not listed here, contact us, we're always happy to explain.
Last updated July 2026 · Reviewed by Jeff Hallman, licensed life settlement broker.
Terms beginning with a number
1035 Exchange
A way to replace one life insurance policy with another, or to exchange a life policy for an annuity, without triggering tax on the gains at the time, under Section 1035 of the federal tax code. The tax is deferred rather than erased, because your cost basis carries over to the new contract. A 1035 exchange is not the same as a life settlement: an exchange replaces your coverage, while a settlement sells your policy for a lump sum of cash. Tax rules are complex, so talk with a qualified tax professional before you act.
Terms beginning with A
Absolute Assignment
The legal transfer of ownership of a life insurance policy from one party to another. When a life settlement closes, you sign an absolute assignment that makes the buyer the new owner and beneficiary of the policy. It is the document that formally completes the sale.
Accelerated Death Benefit
A provision in some life insurance policies that allows you to receive a portion of the death benefit while you are still alive, typically if you are diagnosed with a terminal illness. This is built into the policy and does not involve selling it. Not all policies include this feature, so check with your insurance company or agent to find out if yours does.
Terms beginning with B
Beneficiary
The person (or people) named in your life insurance policy who will receive the death benefit when the insured person passes away. You can usually change your beneficiary at any time. In a life settlement, the buyer becomes the new beneficiary after the sale closes.
Broker (Life Settlement)
A licensed professional who represents you, the policy seller, in a life settlement transaction. A life settlement broker shops your policy to multiple buyers to maximize your offer. Unlike a provider (buyer), a broker works for you and has a fiduciary obligation to act in your best interest. See the full broker vs. provider comparison.
Terms beginning with C
Cash Surrender Value
The amount of money your insurance company will pay you if you voluntarily cancel (surrender) your policy. It is usually only a small fraction of the death benefit. Selling on the open market often pays significantly more: in 2025 the average cash surrender value was $24,360, while sellers who sold their policies received an average of $212,066 (LISA 2025). Learn how your policy is valued.
Cash Value
The savings component that builds up inside certain types of life insurance policies, such as whole life and universal life. Cash value grows over time as you pay premiums. You can borrow against it or withdraw from it, but doing so may reduce your death benefit.
Contestability Period
The window, generally the first two years after a policy is issued, during which the insurance company can investigate and potentially deny a claim if the application contained a misrepresentation. Most policies must be past this period to be sold. In Florida, a policy generally must have been in force for two years before it can be sold, with limited exceptions set by statute.
Convertible Term Policy
A term life insurance policy that includes an option to convert it into a permanent (whole life or universal life) policy without taking a new medical exam. This conversion feature can make a term policy eligible for a life settlement, because permanent policies are what buyers are looking for. Learn how selling a term policy works.
Corporate-Owned Life Insurance (COLI)
A life insurance policy that a business owns on an owner, partner, or essential employee. One common form is key person insurance, which protects the company financially if that person dies; other policies fund buy-sell agreements or deferred compensation. When the insured retires, the business is sold, or a buy-sell agreement is unwound, the policy may no longer be needed and can sometimes qualify for a life settlement. In that case the business, as the policy owner, is the seller.
Cost of Insurance (COI)
The actual cost charged by the insurance company for providing the death benefit coverage inside a universal life policy. The COI typically increases as you get older. Rising COI is one of the main reasons universal life premiums can increase over time and become difficult to afford. Read what to do if your premiums have risen.
Terms beginning with D
Death Benefit
The amount of money the insurance company pays to the beneficiary when the insured person passes away. This is sometimes called the face value or face amount. In a life settlement, buyers consider the size of the death benefit as one of the key factors in determining how much to offer for your policy.
Terms beginning with E
Escrow
A neutral third-party account that safely holds the sale proceeds during a life settlement. When you sell your policy, the buyer's payment goes into escrow first, and the money is released to you only after the change of ownership is confirmed with the insurance company. Escrow protects both sides of the transaction and is required by law in most states.
Estate Planning
The process of organizing your finances, property, and legal documents to ensure your assets are distributed according to your wishes after you pass away. Life insurance is often a part of estate planning. When estate plans change, a policy that was once essential may no longer be needed, which is one common reason seniors explore life settlements.
Terms beginning with F
Face Value
The dollar amount of the death benefit stated on your life insurance policy. For example, if you have a $500,000 life insurance policy, that is the face value. Face value is one of the most important factors in determining whether a policy qualifies for a life settlement and how much it may be worth. Try our life settlement calculator to see an estimate.
Fiduciary
A person or organization that is legally and ethically required to act in your best interest, not their own. In the life settlement world, a fiduciary broker is legally obligated to represent you, the seller, and to work to maximize your offer. This is a critically important protection for consumers. Learn more about how we advocate for you.
Terms beginning with G
Grace Period
A window of time (usually 30 to 60 days) after a missed premium payment during which your life insurance policy remains in force. If you pay the overdue premium within the grace period, your policy continues as normal. If you do not pay, the policy may lapse and you could lose your coverage entirely.
Gross Offer vs. Net Offer
The gross offer is the total amount a buyer agrees to pay for your policy. The net offer is what you actually receive after any broker commission and transaction costs are subtracted. A reputable broker discloses every fee in writing before you sign, so you can see exactly how the gross becomes the net. With Citizens Life Group there is no upfront cost, and the broker's commission is paid from the transaction and disclosed to you in advance.
Guaranteed Universal Life (GUL)
A type of universal life insurance that guarantees the death benefit will remain in effect as long as you pay the required premiums, even if the cash value drops to zero. GUL policies are designed primarily for the death benefit rather than cash value accumulation, and they are commonly seen in life settlement transactions.
Terms beginning with H
Terms beginning with I
In-Force Illustration
A document from your insurance company that projects how your policy will perform going forward, showing future premiums, cash value, and how long the coverage will last. Buyers rely on the in-force illustration to understand a policy before making an offer. Requesting one from your insurer is a normal early step in a life settlement.
Indexed Universal Life (IUL)
A type of universal life insurance where the cash value growth is tied to the performance of a stock market index, such as the S&P 500. IUL policies offer potential for higher returns than traditional universal life, but with more complexity. These policies may qualify for a life settlement depending on the specifics.
Insured
The person whose life is covered by the insurance policy. The insured is not always the same person as the policy owner. In a life settlement, the age and health of the insured are two of the most important factors that determine the value of the policy.
Irrevocable Life Insurance Trust (ILIT)
A trust created specifically to own a life insurance policy, often used in estate planning to keep the death benefit outside the taxable estate. Because the trust, not the individual, owns the policy, the trustee is the person who can sell it in a life settlement. Trust-owned policies can and do qualify, and we regularly work with trustees and their advisors. Learn more about selling a trust-owned life insurance policy, or, if the family is winding the trust down entirely, see how to terminate an irrevocable life insurance trust.
Terms beginning with L
Lapse
When a life insurance policy is terminated because premiums were not paid on time and the grace period has expired. When a policy lapses, you lose your coverage and your beneficiaries receive nothing. Every year Americans lapse or surrender more than 11 million life insurance policies worth over $754 billion (LISA), and many could have been sold in a life settlement instead. See how selling works.
Life Expectancy
An estimate of how many years a person is expected to live, based on their age, health, and medical history. In a life settlement, an independent underwriter reviews the insured's medical records to determine life expectancy. This is one of the most important factors in how buyers price their offers.
Life Expectancy Report (LE Report)
A confidential medical assessment, prepared by an independent underwriting firm, that estimates how long the insured is likely to live based on age, health, and medical records. Buyers use life expectancy reports to price their offers, and in a competitive process a broker often obtains reports from more than one underwriter. These reports are one of the biggest factors in what a policy is worth.
Life Settlement
The sale of an existing life insurance policy to a third-party buyer for a lump-sum cash payment that is greater than the cash surrender value but less than the death benefit. The buyer takes over premium payments and eventually receives the death benefit. Life settlements are legal and regulated in 43 states plus Puerto Rico, and they give seniors a way to unlock the real market value of a policy they no longer need. Read our full guide.
Life Settlement Provider
The company or institutional buyer that actually purchases the life insurance policy in a life settlement transaction. Providers are typically large financial institutions, pension funds, or specialized investment firms. They are different from brokers: a provider represents the buyer's interests, while a broker represents yours.
Terms beginning with M
Maturity
The point at which a life insurance policy reaches its maximum age limit (often age 95, 100, or 121, depending on the policy). When a policy matures, the insurance company pays out the face value or cash value to the policy owner. Some seniors discover their policies are approaching maturity and explore life settlements as an alternative.
Medicaid and Benefit Eligibility
Some seniors receive need-based government benefits such as Medicaid or Supplemental Security Income (SSI). A lump-sum payment from a life settlement can count as an asset and may affect eligibility for these programs. This does not necessarily mean you should not sell, but you should tell your broker early and speak with an elder law attorney or benefits specialist before you do.
Terms beginning with P
Policy Loan
A loan you take from your insurance company using the cash value of your life insurance policy as collateral. Policy loans reduce the death benefit if not repaid. Outstanding policy loans can affect the value of your policy in a life settlement, because the buyer would need to account for any existing loan balance.
Policy Owner
The person or entity that owns the life insurance policy and has the legal right to make decisions about it, including selling it in a life settlement. The policy owner is not always the same person as the insured. Only the policy owner can authorize the sale of a policy.
Terms beginning with R
Rescission Period
A legally required window of time after a life settlement closes during which you can change your mind, cancel the sale, and get your policy back. The length varies by state. In Florida, you have 15 days after you receive the proceeds, and the clock starts at payment, not at signing. This is an important consumer protection that gives you time to reconsider.
Retained Death Benefit (RDB)
An alternative to a traditional cash sale in which you give up ownership and future premium payments but keep a portion of the death benefit for your beneficiaries, at no further cost to you. Instead of a lump sum today, your family receives a set portion of the death benefit when you pass away. A retained death benefit is not right for everyone, but it can suit someone who wants to stop paying premiums yet still leave something behind.
Terms beginning with S
Second-to-Die Policy (Survivorship)
A life insurance policy that covers two people, usually spouses, and pays the death benefit only after both have passed away. Also called survivorship insurance, it is common in estate planning. These policies can qualify for a life settlement, and they often become more valuable after the first insured has passed away.
Secondary Market
The marketplace where existing life insurance policies are bought and sold between policy owners and third-party investors. This is where life settlements happen. The secondary market creates competition among buyers, which drives up the price you receive compared to simply surrendering your policy to the insurance company.
Stranger-Originated Life Insurance (STOLI)
An illegal arrangement in which investors persuade someone to take out a new life insurance policy for the sole purpose of selling it to them, when those investors have no legitimate interest in that person's life. STOLI is banned in Florida and prohibited or unenforceable in many other states. A legitimate life settlement is completely different: it involves a policy you already own and originally bought for real reasons, which you later decide to sell.
Surrender Charges
Fees charged by your insurance company if you cancel (surrender) your policy, especially during the early years. Surrender charges reduce the amount of cash value you receive. These charges typically decrease over time and may eventually disappear. They are one reason the cash surrender value is often much lower than the policy's market value.
Terms beginning with T
Term Life Insurance
A type of life insurance that provides coverage for a specific period of time, such as 10, 20, or 30 years. If the insured passes away during the term, the beneficiary receives the death benefit. If the term expires, there is no payout. Standard term policies generally do not qualify for a life settlement, but convertible term policies may.
Trust-Owned Life Insurance (TOLI)
A life insurance policy that is owned by a trust rather than by an individual. Many permanent policies, especially larger ones, are held this way for estate-planning reasons. When the trust no longer needs the policy, the trustee can explore a life settlement on the trust's behalf, acting as the seller. An irrevocable life insurance trust (ILIT) is the most common example.
Terms beginning with U
Universal Life Insurance
A type of permanent life insurance with flexible premiums and a cash value component that earns interest. Universal life policies are among the most commonly sold in life settlements. However, their premiums can increase over time as the cost of insurance rises, which is why many seniors explore selling them. Learn what to do about rising UL premiums.
Terms beginning with V
Verification of Coverage (VOC)
A form the insurance company completes to confirm the key facts about a policy: that it is active, the current death benefit, the premium, and any outstanding loans. Buyers require a verification of coverage before finalizing an offer, because it confirms exactly what they are purchasing. Your broker requests it for you as part of the process.
Viatical Settlement
Similar to a life settlement, but specifically for a person who is terminally ill, typically with a life expectancy of two years or less. Viatical settlements have different tax rules and regulations than life settlements. Citizens Life Group's brokers are appointed viatical settlement brokers and can help with both life settlements and viatical settlements. See the full viatical settlement guide or read our detailed comparison.
Terms beginning with W
Whole Life Insurance
A type of permanent life insurance that provides coverage for your entire lifetime, as long as premiums are paid. Whole life policies build cash value at a guaranteed rate and have fixed premiums. They are commonly eligible for life settlements, especially when the policyholder no longer needs the coverage.
Reviewed by
Jeff Hallman, licensed life settlement broker (FL Lic. 0266), in the life settlement market since 1999. These definitions are provided for general education and are not legal, tax, or financial advice. Page updated July 2026.
Learn More
Now that you know the terminology, explore these guides to learn how life settlements work and whether your policy qualifies.
What Is a Life Settlement?
A complete guide to how the secondary market for life insurance works.
Read more →Do I Qualify?
Find out if your policy meets the basic requirements for a life settlement.
Read more →How Much Is My Policy Worth?
Learn what factors determine your policy's value in the secondary market.
Read more →Frequently Asked Questions
Answers to the most common questions about life settlements and the process.
Read more →Have Questions? We Speak Plain English.
If anything on this page is unclear, or you want to know what your policy might be worth, we're happy to talk, and there is no obligation.