Until recently, the only options for liquidating an underperforming or unneeded policy was to let it lapse, sell it back to the original insurer for its current net cash surrender value, or to exercise a non-forfeiture option. But thanks to an increasingly competitive secondary market, known as life settlements, life insurance is no longer being treated as simply a death benefit.

Like other types of personal holdings, life insurance has evolved to become an asset with a fair market value and may be sold by its owner at a market price higher than its net cash surrender value under specified circumstances.

This sale of an insured’s existing life insurance policy to a third party, known as a life settlement provider or financing entity, in exchange for a lump sum cash payment is called a life settlement. In a life settlement, the sale price is less than the policy’s face value, but is higher than the policy’s net cash surrender value. Upon selling one’s insurance policy to a life settlement provider or financing entity, the policy owner is relieved from making future premium payments.

A life settlement is for an individual who does not a have a catastrophic or life-threatening illness or condition.