Most people know life insurance goes to their family when they die. Far fewer know they can sell that policy for cash — right now, while they’re still alive. This is called a life settlement, and for many policyholders over 65, it can be worth far more than simply surrendering a policy or letting it lapse.

If you own a life insurance policy worth $100,000 or more and are questioning whether it still serves you, this guide is for you.

What Is a Life Settlement?

A life settlement is the sale of an existing life insurance policy to a third party (an institutional investor) for a lump-sum cash payment. The buyer takes over premium payments and collects the death benefit when you pass away. You receive cash today — often significantly more than the policy’s surrender value.

Life settlements are different from viatical settlements, which are reserved for terminally ill policyholders. Life settlements are available to generally healthy individuals who are typically 65 or older with a policy they no longer need or can no longer afford.

How Much Can You Get for Your Policy?

Life settlement offers vary based on several factors:

Your age and health status — older and less healthy generally means a higher offer
The policy’s death benefit amount — most buyers require a minimum face value of $100,000+
The type of policy — universal life, whole life, and convertible term policies qualify; term policies near expiration are harder to sell
The policy’s cash surrender value — this is the floor; life settlement offers are almost always higher
Current premium costs — lower ongoing premiums make the policy more attractive to buyers

In practice, life settlements typically pay 3–5x the cash surrender value and can represent 10–40% of the policy’s face value. On a $500,000 policy, that could mean a $50,000–$200,000 cash payment versus a $15,000–$30,000 surrender value.

Who Should Consider a Life Settlement?

A life settlement makes sense if one or more of the following apply:

You no longer need the death benefit — your children are grown, your mortgage is paid off, or your financial situation has changed
The premiums have become unaffordable — especially common with universal life policies as costs of insurance increase with age
You need cash for retirement expenses, healthcare, or long-term care — a life settlement can be a significant source of liquidity
Your term policy is convertible and nearing expiration — converting and then settling can capture value that would otherwise disappear
You’re planning your estate differently now — what made sense at 45 may not fit your goals at 75

The worst outcome is letting a policy lapse or surrendering it for minimal cash value when a life settlement could have put tens or hundreds of thousands of dollars in your pocket.

The Life Settlement Process: Step by Step

Understanding how the process works removes the mystery and helps you evaluate whether to pursue it.

Step 1: Policy Eligibility Review A licensed life settlement broker (like me) reviews your policy documents to determine if it qualifies — type of policy, face value, issuing carrier, and your age/health profile.

Step 2: Medical Records Collection To generate an offer, buyers need a life expectancy assessment. This involves reviewing your medical history. You don’t need to be ill — but your health status directly affects the offer amount.

Step 3: Auction to Multiple Buyers Your broker submits your policy to multiple institutional buyers simultaneously. Competitive bidding maximizes your payout. This step typically takes 2–8 weeks.

Step 4: Review and Accept an Offer You review all offers with no obligation. If you accept, the buyer pays you directly, takes ownership of the policy, and assumes premium payments going forward.

Step 5: Receive Your Cash Settlement funds are typically paid within 30 days of completing paperwork. The transaction is confidential.

Tax Considerations for Life Settlements

Life settlement proceeds have tax implications that vary by individual situation:

Proceeds up to your cost basis (premiums paid) are generally tax-free
Proceeds between your cost basis and cash surrender value are taxed as ordinary income
Proceeds above the cash surrender value may be taxed as capital gains

This is a situation where consulting a tax advisor before accepting a settlement offer is strongly recommended. A licensed life settlement broker can also walk you through the general framework.

What to Watch Out For: Life Settlement Scams

The life settlement industry is regulated, but bad actors exist. Protect yourself:

Work only with licensed brokers — in Oregon, life settlement brokers must be licensed by the Oregon Department of Financial Regulation
Avoid unsolicited offers — legitimate buyers don’t cold-call policyholders
Get multiple bids — a reputable broker auctions your policy to many buyers to maximize your offer; single-buyer deals may undervalue your policy
Understand all fees — broker commissions and transaction fees should be disclosed upfront

Is a Life Settlement Right for You?

The honest answer: it depends entirely on your policy, your health, and your financial goals. A life settlement isn’t the right move for everyone — but for policyholders who no longer need their coverage and are sitting on a valuable asset they didn’t know they could monetize, it can be life-changing.

The first step is a free, confidential policy review — no obligation, no pressure, just clarity on what your policy is actually worth on the open market.

I’m Rodney Cummings, RSSA®, a licensed financial services professional in Oregon. I work with multiple life settlement buyers to get my clients the highest possible offers on their policies.

Request your free policy valuation →

Or call: 503-832-8555

What Is a Life Settlement and Is It Right for You?