Life Insurance Consumer Advocacy Center

Is a life insurance policy an asset? Can it be sold? More than 100 years ago, the U.S. Supreme Court confirmed that life insurance is property. This ruling had lasting effects on how insurance policies are held, traded, or sold. As a result, policyholders have the right to sell their policies to third parties, often to a life settlement company (LSC).

 

What is a Life Settlement?

Life settlements are sales of life insurance policies from the policyholder to a third-party – often a hedge fund or other investment company. Upon completing the sale, the policy has a new owner. The policy is still insuring the life of the insured person, but the life settlement company (LSC) – as the new policy owner – takes over payment of the premium and will receive the proceeds when the insured dies. Sales like this may be done with any type of life insurance, including whole life, universal life, term, and even group term life.

 

Why Life Settlements?

There are many reasons why a policyholder might choose to sell their policy. The policyholder may no longer need the policy, or premiums might have increased to the point where they can no longer afford the policy. Instead of letting the policy lapse with no value or surrendering it for its surrender value, the policyholder might benefit more by selling the policy to an LSC. This is especially true if the insured’s health condition reduces their life expectancy (typically less than 10 years)—the basis for determining the purchase price. The buyer can expect to receive the death benefit sooner and pay less in premiums before the insured passes away. Yes, it’s morbid, but that’s how it works. It can be a valuable option for the policyholder to consider.

 

The Ameritas Case

In May, LICAC submitted an Amicus Brief for an ongoing litigation between Ameritas Life Insurance and a Life Settlement Company. In this case, the policyholder had a $3.7 million term policy. Like many term policies, it had a conversion right, which allowed the policyholder to convert the policy to a “permanent” policy after the 20-year term expired. Because the premium on the converted policy would be very high – at least ten times what the policyholder had been paying, retaining the policy was not an attractive option. The policyholder sold the policy to an LSC, which then utilized the owner’s contractual right to convert the policy to a cash value policy. Although the record does not reveal it, presumably the insured was not in good health, which made the LSC willing to pay the original policy owner to take over the policy and pay the high premiums of the converted policy, knowing that it would receive the $3.7 million death benefit when the insured died.

The main issue discussed in the case was the insurance carrier’s argument that the conversion of the policy by the LSC was illegal because the LSC has no “insurable interest” in the life of the insured. This argument was backed by the American Council of Life Insurers. However, LICAC supports the LSC’s argument that the insurable interest requirement applies only when the policy is originally issued and does not apply at the time the policy is sold or converted. This has been affirmed by both legislation and litigation.  LICAC favors allowing consumers to sell their policies to LSC’s because consumers benefit from having options to simply lapsing or surrendering their policies.

 

To read the full Amicus Brief, please visit: https://www.lifeinsuranceconsumeradvocacycenter.org/wp-content/uploads/2025/06/AMICUS-BRIEF-Life-Insurance-Consumer-Advocacy-Center.pdf