Life settlement companies buy used life insurance contracts, keep the policy in force and eventually collect the proceeds. Selling may allow you to unlock the value you’ve accumulated in an old life insurance policy.
Generally, policies are bought from individuals aged 65 and up who are not terminally ill but who are expected to die in less than 14 years, due to serious health conditions. Often, buyers purchase a bundle of policies, spreading the longevity risk. Thus, pools of policies are turned into securities, which are sold to investors, who have interests in many policies. This approach minimizes the chance that a policy on your life will fall into the hands of a single investor, who then will have a huge incentive to speed your demise.
The shorter the seller’s life expectancy, the greater the purchase price, as a percentage of the policy’s face value. For example, if a seller has a 12-month life expectancy, a buyer might bid as much as 60 percent of the policy’s face value. People with longer life expectancies will get lower bids, as a percentage of the policy’s face value.
