The Strategic Use of Life Settlements in Wealth Planning

Life settlements are one of the most underutilized tools in modern wealth planning—yet they can unlock significant value for high-net-worth (HNW) individuals and families. By selling an existing life insurance policy to a third party, policyholders receive a lump-sum payment often far exceeding the cash surrender value.

For advisors and investors focused on tax efficiency, estate liquidity, and capital reallocation, life settlements offer unique planning advantages.

This blog explores how life settlements work, who benefits most, and how they can be integrated into a strategic wealth framework.

What Is a Life Settlement?

A life settlement is the sale of an in-force life insurance policy to a third-party investor. The buyer pays the seller a lump sum, becomes the policy’s new owner and beneficiary, and takes over premium payments. Upon the insured’s passing, the buyer collects the death benefit.

This creates a market-driven exit opportunity for policies that are no longer needed, underperforming, or too expensive to maintain.

Who Can Benefit from a Life Settlement?

• Policyholders aged 65+ with universal, whole, or convertible term life policies

• Individuals with changing estate needs or reduced coverage requirements

• Trusts, estate plans, or entities seeking liquidity without taking on debt

• Heirs or advisors revisiting insurance portfolios during transition planning

Why Consider a Life Settlement?

1. Higher Value Than Surrender: Settlements typically deliver 4x–8x more than surrendering to the insurer.

2. Tax Efficiency: Replacing premiums with investable capital may support broader tax strategies.

3. Estate Simplification: Reduce complexity by monetizing outdated or oversized policies.

4. Funding Opportunities: Redirect proceeds to philanthropy, gifting, business ventures, or real estate.

5. Asset Reallocation: Free up capital from low-ROI insurance to deploy across diversified investments.

Key Evaluation Criteria

• Insured’s age and life expectancy (typically 8–20 years is optimal)

• Policy type, size (often $250K+), and carrier rating

• Premium cost vs. policy value

• Health changes since policy issuance (can increase settlement value)

Considerations and Risks

• Tax Implications: Proceeds may be partially taxable—consult a tax advisor

• Privacy: Medical records and personal data are shared with buyers

• Ongoing Premiums: Buyer assumes payment responsibility, reducing seller’s burden

• Market Access: Secondary markets vary by provider and offer competitiveness

Investment Perspective: Life Settlements as an Asset Class

Investors can purchase pools of life settlements through structured funds, gaining exposure to:

• Non-Correlated Returns: Performance tied to actuarial timelines, not markets

• Defined Exit Value: Death benefit payout provides a predictable outcome

• Yield Strategies: Used in fixed-income alternatives or longevity-focused vehicles

Raziel enables investors and advisors to model, track, and integrate life settlements into overall portfolio and estate planning strategies.

With Raziel, you can:

• Track active and sold policies by type, carrier, and value

• Benchmark settlement returns vs other liquidity strategies

• Model tax-adjusted outcomes and scenario planning

• Monitor allocation to insurance-based alternatives in a broader wealth context

Unlocking Hidden Value Through Life Settlements

Life settlements are not just exit strategies—they are financial optimization tools. When structured well, they provide flexibility, liquidity, and a chance to reallocate legacy capital more effectively.