Final answer:
A life settlement involves a policy owner selling their life insurance policy to a life settlement provider usually through a broker or direct negotiation, resulting in the owner receiving a lump sum payment while the provider gains the policy's death benefit.
Step-by-step explanation:
A life settlement is a financial transaction where a policy owner sells their life insurance policy to a third party, typically a life settlement provider, for a lump sum of cash that is less than the death benefit but more than the cash surrender value. The policy owner benefits from an immediate cash payout, while the life settlement provider will receive the death benefit upon the policyholder's passing. The process can be facilitated through a broker or directly between the policy owner and the provider.
In negotiating a life settlement, several steps are commonly followed. Initially, the policy owner expresses an interest in selling their policy. Next, they must gather pertinent information about their policy and share it with potential buyers. Then, the life settlement provider evaluates the policy to determine its worth and makes an offer. The policy owner can accept the offer or negotiate further. Finally, if an agreement is reached, the transaction is completed with the exchange of the policy for the agreed-upon payment.