Key Terms & Definitions

The Definition of a Life Settlement

The life settlement industry has undergone many circumstances and judicial rulings in the last 100 years. A U.S. Supreme Court decision in 1911 (Grigsby v. Russell, 222 U.S. 149) determined in effect that a valid life insurance policy is personal property that may be sold by its owner.

The Life Settlement Industry

The life settlement industry and the actual selling of life insurance policies has been actively used for 20 years. Over this time, billions of dollars of life insurance has been sold between the institutional marketplace and the sellers of policies. Currently, there are eight states that require an insurance company to notify a client that a life settlement may be an option for them when they are going to surrender or lapse a policy as it may create more value for the policyowner. The life settlement industry is regulated in most states and brokers and providers are required to be licensed in the state the policyowner resides.


The person or persons who receive the net death benefit on a life insurance policy after the insured person’s death.

Broker/Life Settlement Broker/Life Settlement Professional

A Life Settlement Broker is an individual or business that specializes in representing a policyowner that wishes to sell an unwanted or no longer needed life insurance policy.

Death Benefit / Net Death Benefit / Face Value

The amount that is to be paid by the insurance carrier to the beneficiary(ies) listed on the insurance policy upon the death of the insured person.

Financing Entity / Institutional Investor / Institutional Trust / Funder

The companies or investors that specialize and invest in purchasing life insurance policies. Banks, individual investors, hedge funds, and many others have developed Trusts that invest in life insurance policies. They buy hundreds, sometimes thousands of life insurance policies and that policy becomes the investment return on the trust.

Insurance Agent / Life Insurance Agent

An individual who is licensed to sell insurance policies to consumers, which may include health, life, and disability insurance. An insurance agent must be licensed as a life settlement broker to participate in a life settlement transaction. Otherwise, the insurance agent’s main responsibility is to represent the life insurance company.

Insurance Carrier / Insurance Company / Life Insurer

A business that issues insurance products and underwrites insurance contracts whereby the insured pays a premium in case of life events such as disability, death, and pensions.


The individual who has life insurance coverage under a life insurance policy.

Life Insurance Policy

Common types of life insurance policies include universal life, term life insurance, and whole life. These are contracts between a policyowner and a life insurance company, where the life insurance company pays a death benefit to the beneficiary(ies) if the insured pays their contractual premium.

Life Settlement / Life Insurance Settlement

The sale of a life insurance policy to an institutional trust or third party in exchange for a cash amount which is less than the net death benefit of the policy.

Policy Type

Insurance companies have several types of insurance policies. Common types of life insurance policies include universal life, term life insurance, and whole life. One of the qualifying factors of a life settlement is the type of insurance policy an individual holds.

Premium Payment

An amount agreed upon between the insured and the insurance company to maintain the life insurance policy, and can be paid in several ways, including annually, quarterly and monthly.

Death Benefit Settlement Option

These are the types of options that a beneficiary has to receive the death benefit. The life insurance contract will specify the type, but common types are lump sum payment at death, interest accruing, and payment schedules.

Viatical Settlement

A viatical settlement differs slightly from a life settlement in that it is the sale of an insurance policy when the insured is terminally ill and has about a two to four year life expectancy remaining. Normally, the proceeds of a viatical settlement allow the insured to use them to pay for medical bills and living expenses, and the proceeds may be tax-free.


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The material presented herein is designed to provide accurate and authoritative information in regards to the subject matter covered. It is prepared with the understanding that we are not engaged in rendering legal, accounting or other professional services. If legal or other expert assistance is required, the services of an advanced planning attorney or CPA should be sought. Securities offered through American Trust Investment Services, Inc. Member FINRA & SIPC. American Trust Investment Services, Inc. does not offer tax, legal or accounting services. Services are offered by The Rushmore Private Client Group. American Trust Investment Services, Inc. and The Rushmore Private Client Group are not affiliated companies.

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