What is a "life settlement"?

A life settlement refers to the transaction in which a policyholder sells their life insurance policy to a third party for an amount that is greater than the policy's cash surrender value, but less than the death benefit. This process allows the seller to receive immediate cash while transferring the obligation of paying future premiums and the benefit of the policy to the buyer. The buyer then assumes ownership of the policy and will receive the death benefit when the insured passes away.

This transaction can be beneficial for policyholders who no longer need their life insurance or cannot afford to keep paying the premiums, as it provides them with a financial option instead of simply letting the policy lapse.