Education
What Is a Life Settlement?
A life settlement is the sale of a life insurance policy to a third-party buyer for more than its cash surrender value and less than its death benefit. Here's how the secondary market works, who qualifies, and what protections exist for you as the seller.
The Simple Explanation
A life settlement is when you sell your life insurance policy to a third-party buyer, usually an institutional investor, in exchange for a cash payment. The buyer takes over your premium payments and eventually collects the death benefit when the insured passes away. If the insured is terminally or chronically ill, the same sale is called a viatical settlement, which follows its own rules.
The numbers are significant. In 2025, the average life settlement paid sellers $212,066, nearly 9 times the $24,360 average cash surrender value, according to the Life Insurance Settlement Association's 2025 market data.
Think of it like selling your house. Your house has value whether or not you sell it, but when you do sell, you receive cash you can use right now. A life insurance policy works the same way. It has a value in the marketplace that is often much larger than what your insurance company would give you.
A life settlement lets a policyholder realize a policy's market value, rather than surrendering it for a fraction of that amount.
Life Settlement vs. Surrendering Your Policy
When you surrender a policy, your insurance company pays you the cash surrender value, typically 3 to 5% of the face value. That is it; the coverage ends.
In a life settlement, your policy enters a competitive marketplace. Multiple buyers bid for it, and you receive significantly more. In 2025, an average of nearly 9 times the cash surrender value. Learn how much your policy could be worth.
Is This Legal? How Is It Regulated?
Yes. Life settlements are completely legal and are a well-established financial transaction in the United States. Life settlements are regulated by state insurance departments in 43 states, covering the vast majority of the U.S. population.
State regulation includes requirements for licensed brokers, mandatory disclosure of transaction details, anti-fraud protections, and a required "rescission period," typically 15 to 30 days after closing, during which you can cancel the sale and get your policy back if you change your mind.
What Does "Fiduciary Broker" Mean?
A fiduciary is legally required to act in your best interest, not their own, and not the buyer's. Citizens Life Group is a licensed life settlement brokerage that represents you, the seller, as your fiduciary broker.
This is different from working directly with a life settlement provider (buyer). A buyer negotiates for itself. As your licensed broker, we shop your policy to multiple buyers and work to maximize your offer. Whether your policy is handled by Citizens Life Group or an affiliated brokerage, your broker represents you, the seller, as a fiduciary. See exactly how the selling process works, or get the payout picture in our guide to selling your life insurance policy for cash.
Why Do Seniors Sell Their Life Insurance Policies?
Premiums are no longer affordable
Rising premiums can put a strain on a fixed retirement income. A life settlement eliminates premium payments and puts cash in your pocket. See if you can sell your policy.
The coverage is no longer needed
Children are grown, the mortgage is paid off, or a spouse has passed. The original purpose of the policy no longer applies.
Need cash for retirement living
Extra funds can be used for travel, home improvements, supplementing retirement income, or simply enjoying life.
Need cash for medical expenses
A health event can create unexpected expenses. A life settlement can provide significant liquidity quickly.
Estate planning changes
When estate plans change, beneficiaries change, or financial priorities shift, a policy that once made sense may no longer fit.
Better alternatives exist
When an advisor identifies a different financial product that better serves the client's current needs, the old policy can be sold.
Frequently Asked Questions
What is a life settlement?
A life settlement is the sale of an existing life insurance policy to a third-party buyer for a cash payment greater than the policy's cash surrender value. The buyer takes over future premium payments and receives the death benefit when the insured passes away.
Is selling a life insurance policy legal?
Yes. Life settlements are legal in the United States and are regulated in 43 states. The secondary market for life insurance is governed by state insurance departments and has robust consumer protections.
What is the difference between a life settlement and surrendering a policy?
When you surrender a policy, you receive the cash surrender value directly from your insurance company, typically a small fraction of the death benefit. In a life settlement, you sell the policy to a third-party buyer in a competitive marketplace. In 2025, the average life settlement paid sellers $212,066, nearly 9 times the $24,360 average cash surrender value, according to the Life Insurance Settlement Association (LISA).
Is selling my life insurance policy the same as a viatical settlement?
No. A viatical settlement involves a terminally ill person (typically with a life expectancy under 2 years) and has different tax treatment and rules. A life settlement is for seniors who are not terminally ill. Both involve selling a life insurance policy, but they are distinct transactions.
What happens to the death benefit?
When you sell the policy, the buyer becomes the new policy owner and beneficiary. When the insured passes away, the buyer receives the death benefit. Your family will not receive a death benefit from the sold policy.
Will my family know I sold my policy?
You are under no obligation to disclose the sale to your beneficiaries, though it may be a good idea to discuss it with them. Your broker and the buyer are required to keep your personal information confidential.
Are life settlement proceeds taxable?
Life settlement proceeds may be subject to income tax, depending on your cost basis in the policy. We strongly recommend consulting a tax professional before completing a life settlement. Citizens Life Group does not provide tax advice.
Find Out If Your Policy Qualifies
The estimate takes a few minutes, and there is no obligation. See what your policy is worth in the secondary market.