Life Settlement
Sale of a life policy by a non-terminally-ill (usually senior) policyowner to an investor for more than cash value but less than face value; payment may be taxable, and the transaction is state-regulated.
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Practice This Concept
In a life settlement, the policyowner typically:
Sells an existing life insurance policy to a third-party investor for a cash payment, with the investor becoming the beneficiary — A life settlement is a transaction in which the owner of an existing life insurance policy sells the policy to a third-party investor for a lump-sum cash payment that exceeds the policy's cash surrender value but is less than the face amount. The investor becomes the new owner and beneficiary, continues paying premiums, and collects the death benefit when the insured dies. Life settlements are alternatives to surrendering or letting a policy lapse, often used by older insureds who no longer need the coverage. These transactions are heavily regulated to protect consumers from abuses such as stranger-originated life insurance (STOLI).
National insurance concept
In the distribution of insurance, the key legal difference between an agent and a broker is that:
An agent represents the insurer, while a broker represents the consumer in placing coverage — An agent is the insurer's representative — acting for the insurer, the agent's acts are generally attributed to the insurer. A broker, by contrast, represents the consumer in procuring insurance. Under California law, life and health insurance is transacted by agents, not brokers (CIC Sections 31, 32, 33); a life settlement broker is a specialized exception requiring a separate license.
CA-specific example
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