What is a Life Settlement Investment?

Jan 6, 2020

What is a Life Settlement Investment?

People purchase life insurance with a purpose. Perhaps a young father wants to ensure his family has necessary funds in case of untimely death. Or it may be to pay off a major debt, liability, or some other financial need.  Meanwhile, the individual lives, the children grow up, the debts are paid. In other words, the obligation goes away. Eventually, the insured wakes up one morning wondering why he is still paying for an insurance policy he no longer needs.

The insured has 4 options:

  1. Pay the premium year after year.
  2. Stop paying for the policy.
  3. Cash it out. This is typically pennies on the dollar, however, it is better than allowing the policy to lapse.
  4. Sell the policy. Since the policy is an asset, it can be sold.  As a result, the buyer will pay you more than the cash value.

Why would anyone choose to sell a life insurance policy?

Of the four choices available, selling the policy will provide the most cash.

Why would someone purchase a life insurance policy?

A buyer will do two things:

  1. They pay you money for your policy. Generally a good deal more than the cash value of the policy.
  2. They pay any and all future premiums to keep the policy in force.

What is the potential benefit for the buyer?

The buyer will name themselves (or their company) as the beneficiary of the policy. At the death of the insured, the new owner receives the death benefit.

What risk does the buyer assume?

The risk comes after the buyer is paid and “paying the insurance premiums” due (likely for the rest of your life), the death benefit will cover their costs PLUS provide a return on their investment.

Is selling your policy right for you? That is a personal decision. If you still need the coverage, retaining the policy and paying the premium is likely your best choice. If you no longer need or want the policy, then selling the policy is an avenue worth exploring.

Who buys these policies?

Typically, policies are bought by aggregators who (with the help of agents) buy hundreds or thousands of life policies per month. After that, the aggregator re-sells the policy to investors.  In many cases, the investor will use a Self Directed IRA to invest in policies. When using a Self Directed IRA, the death benefit will go to the IRA (the buyer) income-tax free.

If you would like more information on how to invest in life settlements, please see: How to Invest in Life Settlements by the IRA Club.


For information about the Self Directed IRA or Solo 401k, call IRA Club at 312-795-0988

IRA Club offers no investments, products, or planning services. Therefore, please consult your attorney, tax professional, financial planner, and any other qualified person before making any investments.