A life settlement is simply the sale of an existing life insurance policy by a terminally ill or elderly person to another party. The price of the policy is negotiated and sold by the owner at a discount to the face amount. The purchaser then collects the full amount paid out under the policy.
Life settlements are attractive to policyholders because they provide a secondary market for life insurance policies that are no longer needed or wanted. Investors are attracted to life settlements because they offer the opportunity for potentially high returns that are not tied to stock or bond markets, interest rates, or business cycles.
In reports issued in 2011 and 2012, the insurance research group, Conning & Co., estimated that the life settlement industry completed $7.6 billion in face value of transactions in 2009, $3.8 billion in 2010, and $3.8 billion in 2011.
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