Life Settlement
Insurance-Linked Securities
Definition
A life settlement is the purchase of an existing life insurance policy from the policyholder for more than surrender value and less than the death benefit.
Why it matters
Returns depend on life expectancy, premium funding, policy terms, carrier credit, servicing, and diversification across insured lives rather than market price appreciation.
Common misconceptions
- •Longer-than-expected longevity can reduce returns even if the policy remains valid.
- •The purchase price is only one input; ongoing premiums can materially change yield.
Technical details
Core Inputs
Diligence includes policy validity, death benefit, premiums, contestability, carrier rating, life expectancy estimates, medical updates, and servicing controls.
Portfolio Construction
Investors manage mortality dispersion, premium reserves, carrier concentration, policy size, insured age, and medical condition diversification.