Until relatively recently, individuals who had taken out life insurance policies to protect their families in the event they died while their children were young or before they had finished college often would allow those policies to lapse or would surrender them to their insurance companies in exchange for the stated surrender value when they decided they did not need the policies any longer, perhaps because their children had grown up, their finances had improved, or the premiums had become too difficult to meet.
Today, however, there is a growing industry that in many instances provides life insurance policyholders with another alternative: the ability to transfer ownership of a policy to a third party for an immediate cash benefit, with the transferee becoming the owner of the policy, paying the premiums, and obtaining the death benefit upon the insured’s death. Indeed, a variety of entities even have begun the process of securitizing such “life settlements,” much as has been done with credit card receivables and home mortgages, with the aggregate life settlement market estimated, on a national basis, to be as large as $500 billion.1
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