A life settlement is a transaction where the owner of a life insurance policy sells the policy for an amount greater than the cash value, but less than the face value, to a third party called the provider.
Life settlement brokers work on behalf of the policy owner to negotiate a life settlement contract between the owner and the provider. Life settlement providers purchase the life insurance policy, continue paying any premium due, and become entitled to the policy benefits upon death of the original owner.
A viatical settlement is the term used to describe a life settlement where the policy owner is chronically ill or is terminally with less than two years to live.
Life settlement brokers and providers fill an important need by providing a market for policy owners to cash in on their life insurance policy for an amount greater than the policy cash value. However, just as other professionals involved in insurance transactions, life settlement brokers and providers face lawsuits alleging professional wrongful acts and should protect themselves with errors and omissions insurance.