A life settlement refers to the sale of an existing insurance policy to a third party. In a life settlement, the third party does not have an insurable interest in the life of the insured; that is, the purchaser does not have an “interest” in the continuing life of the insured in the manner of a traditional beneficiary, who is usually related to the insured (spouse, sibling, child, etc.). Most types of life insurance can qualify in life settlement transactions.

The emergence of life settlements, particularly in light of newer variations that appear to treat insurance as an instrument for financial investment, has generated considerable controversy. On the one hand, there is compassion for the types of individuals who have a legitimate need for cash, which ...