Instead of lapsing the policies and receiving no return on the premiums they had paid for many years, these three wise men sold their policies to institutional investors in the secondary life insurance market and received cash windfalls of approximately $600,000 each.

By coordinating the sale of their company with the sale of their obsolete buy/sell policies, the owners were able to sell their company quickly at a reduced all-cash price because the life settlement proceeds provided the money they needed to fill the gap between their original selling price and the offers from buyers.

Life Settlement Basics
Although life settlement viability is determined on a case-by-case basis, with all transactions subject to relevant legal requirements and underwriting authorization, the general purchasing parameters are: the insured is 65 or older, the policy's death benefit is $250,000 or more, and the policy has been in force at least 2 years.

Unlike applying for life insurance, no medical exams or extensive interviews are required. The underwriting process involves only paperwork, such as your life insurance policy and in-force ledger as well as your medical records, which are necessary to verify the specifics of your insurance and health. Furthermore, there are no appraisal, application or processing fees.

Large portfolios of life policies are purchased by institutional investors seeking predictable non-market correlated returns based on the future value of policy proceeds. In 2006, corporate money managers invested $10-$15 billion in life settlements⁴ - more money than in the previous seven years combined - because they are increasingly interested in purchasing pools of life policies to diversify their portfolios into alternative investments.