How Life Settlements Fit Into a Modern Retirement Strategy

The traditional retirement blueprint, saving in a 401(k), collecting a pension, and relying on Social Security, is no longer a universal reality. Today’s retirees face rising costs for medical treatments, increased longevity, and market volatility, often finding their retirement resources to be insufficient. In this challenging landscape, a once-niche financial tool is gaining strategic relevance: the life settlement.

What Is a Life Settlement?

A life settlement transaction refers to selling a life insurance policy to hedge funds or other institutional buyers. Companies that buy life insurance policies enable you to convert an expensive or unneeded policy into cash. This payout can help you achieve retirement goals, reduce expenses, and cover healthcare or long-term care costs without depleting your other savings.

The Changing Landscape of Retirement

The traditional “three-legged stool” of retirement security is now unstable for many. With pensions becoming rare, the burden of saving falls entirely on the policy holder. Retirees face a triple threat: market downturns that can deplete a portfolio and increased longevity, which raises the risk of outliving one’s assets.

This financial pressure necessitates a re-evaluation of all potential resources. For seniors with a funding shortfall or a life insurance policy that no longer fits their needs, the life settlement industry offers a pragmatic solution. A life settlement broker can facilitate the process of converting this underperforming asset into immediate capital.

How the Life Settlement Process Works

The life settlement process is a regulated transaction. To qualify, the insured is typically at least 65 years old with a policy of USD$100,000 or more, such as universal, whole life insurance, settlements, or convertible term life.

1. Policy evaluation

A licensed life settlement provider assesses the policy’s value. The provider must hold a valid provider license for this official business.

2. Market auction

The provider presents the policy to a competitive marketplace of institutional investors, the life settlement companies that buy policies.

3. Offer and acceptance

The policyowner receives offers along with a disclosure statement detailing the terms. The life settlement contracts are then prepared for review.

4. Ownership transfer

The investor becomes the new owner, assumes all future insurance premiums, and ultimately collects the death benefit. Some arrangements may involve a retained death benefit, but this is less common.

Strategic Uses for Retirement Funding

The lump-sum payout from a settlement is a strategic financial tool that can be deployed in several critical ways to fortify a retirement plan.

1. Funding long-term care

A life settlement provides vital liquidity for medical treatments and long-term care. This is a key alternative for those who lack long-term care insurance or whose accelerated death benefit riders are not applicable. Consulting a medical professional to understand one’s health outlook is a crucial step in this decision.

2. Supplementing retirement income

Settlement proceeds can bridge the gap between fixed income and living expenses. This strategy helps preserve a retirement portfolio by preventing withdrawals during market downturns. A reputable life settlements broker firm can provide essential market data to compare the lump-sum offer against the policy’s long-term value.

3. Eliminating premium burdens

The sale immediately halts all future insurance premium payments for an unneeded policy. This transforms a financial drain into a liquid asset, significantly improving monthly cash flow and freeing up capital for other essential retirement resources.

4. Diversifying assets

The cash settlement enables retirees to transfer assets from a single life insurance policy, a type of asset class sometimes referred to as “death bonds,” into a diversified portfolio. Securities laws govern this reinvestment and helps mitigate risk. The funds can also be used to pay down debt, creating a more stable financial foundation.

Weighing the Considerations

A life settlement is a significant decision with important consequences that require careful evaluation.

1. Eligibility for benefits

A lump-sum payment can be counted as an asset, potentially pushing you over the income limit for means-tested government benefits like Medicaid. Strategic planning is necessary to utilize the funds without jeopardizing this crucial assistance.

2. Tax liability

The portion of your proceeds that exceeds the total premiums you paid into the policy is likely taxable. Consulting a tax advisor is crucial for understanding your potential tax obligations and avoiding unexpected liabilities.

3. Disinheriting heirs

Selling your policy means your named beneficiaries will not receive the death benefit. This is a permanent change to your estate plan and requires a clear conversation with your heirs about their financial future.

4. Loss of privacy

The new policy owner has a financial interest in your lifespan and will likely require periodic updates on your health status. This results in a permanent loss of medical privacy, as a third party will have ongoing access to your confidential records.

The life settlement market has matured, driven by increased regulation. When reviewing life settlement contracts, seeking independent, fee-only advice is crucial. A clear disclosure statement is essential, and using a translation application tool can help ensure understanding for all parties. When reviewing documents, pay close attention to the page layout to find all critical information.

The Bottom Line

Ignoring a potential asset is a luxury few can afford. For seniors with a policy from a life insurance carrier for a need that no longer exists, a life settlement is a powerful strategic option. Life settlement companies provide the financial flexibility to cover essential costs and improve quality of life. Exploring this option with a qualified professional or third-party investor should be a standard part of crafting a resilient, modern retirement plan.

This post may contain affiliate links.

More Recommended Ebike/Scooters

Check out these other ebikes and scooters I've reviewed:

Urban Arrow Ebike – Last year, I made one of the largest purchases I’ve ever made – I bought a $9,000 electric cargo bike from Urban Arrow. In my Urban Arrow review, I will discuss what it is and why I decided to buy this bike, as well as discuss how impactful a bike like this can be on your journey to financial independence.
Troxus Explorer Step-Thru Ebike – The Troxus Explorer Step-Thru is a fat-tire ebike that I’ve had the pleasure of riding for a while now. It has amazing power, great looks, and awesome range. If you’re looking for a great fat-tire ebike that offers a lot for the price, the Troxus Explorer Step-Thru is definitely one for you to consider. Check out my Troxus Explorer Step-Thru Review.
Hovsco HovBeta Ebike – The HovBeta is a folding ebike with great specs and a lot of interesting features, and importantly, it’s sold at a good price point. I’ve had a blast commuting with it and using it to do deliveries with DoorDash, Uber Eats, and Grubhub. Check out my Hovsco HovBeta Ebike Review.
Vanpowers Manidae Ebike – The Vanpowers Manidae is a fat tire ebike that I’ve been riding as my primary winter commuting bike and have also been using it to do food delivery with apps like DoorDash, Uber Eats, and Grubhub. After clocking in a decent number of miles with this ebike, I wanted to write a post sharing what my experience with the Vanpowers Manidae ebike has been like. Check out my Vanpowers Manidae Review.
Sohamo S3 Step-Thru Folding EBike Review – A Great Value Folding Ebike – The Sohamo S3 Step-Thru Folding Ebike is an entry-level folding ebike that offers a lot of value for the price point. I’ve been riding the Sohamo S3 for a while now, putting the bike through its paces, and I have to say, this bike has exceeded all of my expectations. Check out my Sohamo Review.
KBO Flip Ebike – The KBO Flip is an excellent bike. I’ve had a great time riding it and think it’s a versatile bike that can be used for a lot of purposes and can fit a variety of lifestyles. It’s worked out great for me as a general commuter bike and as a food delivery bike. Check out my KBO Flip Review.
Hiboy P7 Commuter Ebike – The Hiboy P7 is an excellent electric commuter bike that’s offered at an affordable price point. The range and speed of this bike are both very good, so you won’t have any trouble getting anywhere you need to go with it. As a food delivery vehicle, this is also good – with how much range it offers, you’ll be able to work all day on a single charge. Check out my Hiboy P7 Commuter Electric Bike Review.
Himiway Escape Ebike – The Himiway Escape is an interesting bike for anyone looking for a moped-style ebike. If you’re a gig economy worker, the Himiway Escape is particularly interesting and it’s possible to think of it as an investment, especially if you can opt to do deliveries with the Himiway versus using a car. It’s not cheap, but you can definitely make your money back when you compare the mileage you’ll put on your car versus using an ebike. Check out my Himiway Escape Bike Review.
Espin Sport Ebike – The Espin Sport is a good ebike for someone who is looking for an ebike that feels and rides more like a regular bike. There are many ebikes that are really only bikes in name. In reality, they’re basically electric mopeds. The Espin Sport, by contrast, is a bike you could probably ride without the battery and you’d feel like you’re just riding a regular bike. Check out my Espin Sport Review.
Varla Eagle One Scooter – The Varla Eagle One is an excellent scooter that can make sense for a lot of people. It can work as a primary mode of transportation. You can use it to work on gig economy apps like DoorDash, Uber Eats, and Grubhub. And it can also be a recreational vehicle if you’d prefer to use it for that. Check out my Varla Eagle One Review.
Varla Falcon Scooter – The Varla Falcon is an excellent scooter that offers a good amount of power at a lower price point compared to more powerful scooters. It’s not exactly an entry-level scooter, nor is it a high-powered scooter. I think it fits somewhere in-between those two categories – an intermediate scooter if I had to give it a category. Check out my Varla Falcon Review.
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Hiboy S2R Scooter – The Hiboy S2R is one of the more interesting electric scooters I’ve been able to test out. It’s not a high-powered scooter, but for an everyday transport option, it’s very useful, especially given some of the unique features that it has. Indeed, for the price, the Hiboy S2R might be the best value scooter I’ve used. Check out my Hiboy S2R Review.
Fucare H3 Scooter – The Fucare H3 is a fun scooter and I’ve enjoyed testing it out. For a daily commuter or quick trips or errands, the Fucare H3 is probably the scooter I’ll use. It’s portable and easy to maneuver, so it’s just easier to take on the road when I need it. Check out my Fucare H3 Scooter Review.

More Recommended Investing App Bonuses

For additional investing app bonuses, be sure to check out the ones below:

M1 Finance ($75) – This is a great robo-advisor that has no fees and allows you to create a customized portfolio based on your risk tolerance. You also get $75 for opening an account. Check out my M1 Finance Referral Bonus – Step-By-Step Guide.
SoFi Invest ($25) – SoFi Invest is an easy brokerage account bonus that you can earn with just a few minutes of work. Use my SoFi Invest referral link, fund your SoFi Invest brokerage account with just $10 and you’ll get $25 of free stock. I also have a step-by-step guide for the SoFi Invest referral bonus.
Robinhood (1 free stock) – Robinhood gives you a free stock valued between $2.50-$225 if you open an account using my referral link.
Public (1 free stock) - Public gives you a free stock valued between $3-$70 if you open an account using my referral link.

More Recommended Bank Account Bonuses

If you’re looking for more easy bank bonuses, check out the below options. These bonuses are all easy to earn and have no fees or minimum balance requirements to worry about.

Ally Bank ($100) – Of all the banks out there, Ally is, without a doubt, my favorite. At the moment, Ally is offering $100 to customers who open an eligible Ally account and meet the requirements. Here are the step-by-step directions to earn your Ally Bank referral bonus.
Chime ($100) - Chime is a free bank account that offers a referral bonus if you use a referral link and complete a direct deposit of $200 or more. In practice, any ACH transfer into this account triggers the bonus. This bonus is easy to earn and posts instantly, so you’ll know if you met the requirements as soon as you move money into the account. I wrote a step-by-step guide on how to earn your Chime referral bonus that I recommend you check out.
US Bank Business ($400/$1200) – This is a fairly easy bank bonus to earn, since there are no direct deposit requirements. In addition, you can open the Silver Business Checking account, which comes with no monthly fees. Check out how to earn this big bonus here.
Current ($50) – Current is a free fintech bank that’s offering new users a $50 referral bonus after signing up for an account using a referral link. Current is an easy bonus to earn and also gives you access to three savings accounts that pay you 4% interest on up to $2,000. That means you can put away up to $6,000 earning 4% interest. That’s very good and makes Current an account I recommend to everyone. Check out my step-by-step guide on how to earn your Current Bank bonus.
Novo Bank ($40) - Novo bank is a free business checking account that’s currently offering a $40 bonus if you open a Novo business checking account using a referral link. In addition to being a good bank bonus, Novo is also a good business checking account. It has no monthly fees or minimum balance requirements and operates a good app and website. Indeed, it’s the business checking account I currently use for this blog. Check out my post on how to easily open a Novo account.
Varo ($25) – Varo is a free fintech banking app similar to Chime or Current. It’s currently offering a $25 bonus to new users that open a new Varo account with a referral link. The bonus for this bank is very easy to meet, all you need to do is spend $20 within 30 days of opening your Varo account. Check out my step-by-step guide to learn how to earn this bonus.

Kevin is an attorney and the blogger behind Financial Panther, a blog about personal finance, travel hacking, and side hustling using the gig economy. He paid off $87,000 worth of student loans in just 2.5 years by choosing not to live like a big shot lawyer.

Kevin is passionate about earning money using the gig economy and you can see all the ways he makes extra income every month in his side hustle reports.

Kevin is also big on using the latest fintech apps to improve his finances. Some of Kevin's favorite fintech apps include:

SoFi Money. A really good checking account with absolutely no fees. You'll get a $25 referral bonus if you open a SoFi Money account with a referral link, and an additional $300 if you complete a direct deposit.
5% Savings Accounts. I'm currently getting 5.24% interest on my savings through a company called Raisin. Opening a Raisin account takes minutes to complete, it's free, and all of your funds are FDIC-insured. I explain how it works, why I'm now using it to store my emergency fund and any other cash savings I have, and why I recommend everyone check it out in this review.
US Bank Business. US Bank is currently offering new business customers a $400/$1200 signup bonus after opening a new account and meeting certain requirements.
M1 Finance. This is a great robo-advisor that has no fees and allows you to create a customized portfolio based on your risk tolerance. You also get $75 for opening an account.
Empower. One of best free apps you can use to monitor your portfolio and track your net worth. This is one of the apps I use to track my financial accounts.

Feel free to send Kevin a message here.