Life settlement refers to an old-aged policy owner (65 or above) selling unwanted life insurance policy to a life settlement provider (buyer) and receive an immediate cash payment considerably larger than the cash surrender value offered by insurance carrier.
Life settlement was first introduced in the U.S. in 1980s, initially targeted to help terminally ill policy owners e.g. those contracted with AIDS. The market has now evolved to also help the wider age 65+ population. Now there are more than 40 States in the US which have enacted life settlement regulations in guiding the conduct of life settlement activities.
Life settlement is becoming popular in the US as a means of helping the old age segment to better prepare for retirement. Some of the reasons for considering life settlement include:
- old-aged life policy owner whose insurance need has substantially reduced (e.g. due to change in family situation, or no longer have material outstanding financial liabilities, such as, mortgage);
- reduce cash burden by stop making insurance premium after retirement;
- in need of cash to pay for medical or other expenses;
- life settlemet is found to be a better option as compared to surrendering the life policy for cash surrender value or taking out a policy loan.
As ageing population taking center stage of public agendas, more countries are now at different stages in enabling life settlement, e.g. China, the Province of Ontario in Canada, and South Korea.