In terms of definition, a life settlement is the financial transaction of an existing life insurance policy to a licensed life settlements buyer for more than its cash surrender value, but less than its death benefit.
The policy owner transfers ownership and beneficiary rights to an institutional investment fund.
The insured receives a lump-sum cash payment that can often be 4 to 6 times greater than the cash surrender value in exchange for transferring ownership.
The money belongs entirely to the policy seller and can be spent at their discretion. Life settlements can also be in the form of a paid-up death benefit.