A life settlement is the process of selling an unneeded or unwanted life insurance policy for fair market value in the secondary market.  According to a 2006 Time Magazine study, 88% of universal life policies never pay a death benefit. Further, there is a 24% lapse rate for seniors in the first five years after the issuance of a policy. Traditionally, a life insurance policyowner had three options for dealing with an unwanted or unneeded policy: (1) continue paying premiums for the insured’s lifetime; (2) surrender the policy to the issuing insurance company for a fraction of its value; or (3) allow the policy to lapse and lose everything invested into it.  Term policies have no surrender value, making them worthless the policyowner stops paying premiums.  Life settlements add a valuable fourth option.

Life settlements were created to provide a meaningful alternative to the surrender or lapse of a life insurance policy.  A policyowner now can realize a policy’s fair market value in the life settlement market, also known as the secondary market for life insurance.  Financial institutions are purchasing policies in a free market, providing an eligible policyowner with a monetary return well above the surrender value of the policy.  When a policyowner no longer wishes to continue paying premiums on a policy, it is imperative that the policyowner understand that there may be value in the policy well in excess of its lapse or cash surrender value.  The proceeds of a life settlement are unrestricted and can be used for any purpose.

Long understood by European markets, life settlements are now being popularized in the United States.  A market has developed in the United States in which financial institutions purchase policies from policyowners, take on the responsibilities of the policyowner, pay the premiums for the policies, and become the beneficiary.

Generally, eligible candidates for a life settlement own a policy with a face amount of at least $100,000 that is at least two-years old, insuring an individual 65 or older who has experienced a change in health since the policy was put in force.

The life settlement industry has expanded rapidly in the last few years due to billions of dollars of investment funds pouring in from institutional investors, such as pension funds, hedge funds, closed-end funds, private equity groups, multi-national insurance companies and global investment banks.  Institutional investors became increasingly interested in purchasing pools of life policies to diversify their portfolios into alternative investments.  In 2006, these money managers invested $12 billion in life settlements, which was more money than in the previous seven years combined.

A non-correlated asset class, life settlements are insulated from market, interest rate, political and global risks, thereby making them very attractive to financial institutions.  Merrill Lynch, American International Group, Lloyds of London, HVB Fonds Finance, Goldman Sachs and Credit Suisse are just some of the corporations that have purchased policies in the secondary life insurance market for portfolio diversification purposes.

Be assured that Brookwood Settlements never associates with providers who would use private money from individuals to purchase your life insurance policy.  This ensures that your policy becomes a part of a large portfolio of policies owned by a credible financial company, rather than a single policy owned by an unscrupulous individual.

Brookwood Settlements only uses providers with institutional capital, which offers maximum protection from privacy and fraud risks.  These providers typically purchase hundreds of policies and package them in bundles for their institutional money manager clients.  These sophisticated corporate investors are not concerned about the lifespan of any one particular insured.  Instead, they are solely interested in the average life expectancy of an entire portfolio of policies, which is actuarially assessed based on the mortality rates of the general population.

Answers to the most common questions about life settlements can be found in the FAQs Section of this website.