Introduction

Life settlements are regulated financial transactions — but many policyholders are unclear about what actually happens during the process.

• Who reviews the policy?
• What documents are required?
• How is value determined?
• What protections exist?

Understanding the mechanics is essential before making any decision.

If you’re new to the concept, start with our complete overview:
Read More: How It Works & Policy Options

This article breaks down the life settlement process step by step — from initial review to closing — so you understand what occurs at each stage and where consumer protections apply. This content is for educational purposes only and does not constitute legal, tax, or financial advice.

Step 1: Initial Policy Review

The process begins with a preliminary evaluation of the life insurance policy. At this stage, no commitments are made and no transfers occur.

Basic information is typically reviewed, including:

• Policy type (whole, universal, variable, or convertible term)
• Face amount (death benefit)
• Current premium structure
• Policy issue date
• Insured’s age
• General health overview (non-detailed initially)

The purpose of this stage is to determine whether further evaluation may be economically viable. Not every policy qualifies. Not every situation proceeds past this stage.

Many inquiries end here if the policy is not a strong candidate based on age, health profile, or premium economics. There is generally no obligation to proceed.

Read More: Who Qualifies for a Life Settlement?

Step 2: Authorization and Documentation

If the policy appears potentially eligible, the next phase involves documentation and formal authorization. This typically includes:

• Full copy of the life insurance policy
• Recent in-force illustration from the carrier
• Premium payment history
• Carrier contact authorization
• HIPAA authorization (if medical records are needed)

The HIPAA authorization allows medical records to be requested for underwriting purposes. Medical privacy is governed by federal HIPAA rules and state insurance regulations.

Only licensed life settlement providers or brokers may request this documentation in regulated states. You can review regulatory standards through the National Association of Insurance Commissioners (NAIC).

At this stage, underwriting begins.

Step 3: Underwriting and Life Expectancy Assessment

This is where the economic modeling occurs.

Institutional buyers evaluate policies using actuarial analysis. The value of a life settlement depends largely on the relationship between:

• Life expectancy
• Ongoing premium obligations
• Policy structure
• Expected time horizon
• Risk-adjusted return projections

Medical records are reviewed by independent life expectancy providers. These are specialized underwriting firms that assess mortality projections based on medical data, age, and actuarial tables.

The shorter the projected life expectancy (statistically speaking), the more economically viable the policy may be for institutional investors. That said, life expectancy estimates are projections — not guarantees.

Policies are evaluated within broader portfolio models. Institutional buyers typically acquire policies as part of diversified investment pools rather than isolated purchases. This actuarial structure is what distinguishes regulated life settlements from informal private transfers.

Read More: Understanding the Secondary Market for Life Insurance

Step 4: Offer Structuring

If underwriting supports potential viability, one or more offers may be presented. An offer typically reflects a lump-sum payment that is:

• Greater than the policy’s cash surrender value
• Less than the full death benefit

The offer accounts for projected premium payments, time to maturity, risk profile, and capital costs.

Policyholders may:

• Accept the offer
• Decline the offer
• Request clarification
• Choose not to proceed

There is no requirement to accept any offer. Transparency requirements in many states mandate that disclosures explain alternatives, compensation structures, possible tax implications, and effects on public benefits.

Read More: Alternatives to a Life Settlement

Step 5: Acceptance and Closing Process

If an offer is accepted, formal closing documents are prepared. This typically includes:

• Change of ownership forms
• Change of beneficiary forms
• Settlement agreement
• Escrow instructions

Funds are usually placed in escrow during the transfer process. Ownership transfer occurs only after:

1. The insurance carrier confirms the change of ownership.
2. Escrow confirms documentation is complete.
3. Funds are released to the seller.

At this point, the buyer becomes the policy owner and beneficiary, and assumes responsibility for future premium payments. The original beneficiaries no longer receive the death benefit. This is often the most emotionally significant aspect of the transaction.

Read More: Risks of Selling a Life Insurance Policy

Step 6: State-Mandated Rescission Period

Most states require a rescission period following closing. This period is commonly:

• 15 to 30 days
• Defined by state insurance code

During this time, the seller may cancel the transaction, repay the settlement funds, and reclaim ownership of the policy. Rescission protections are part of state regulatory safeguards.

Additional Regulatory Oversight

Beyond general state supervision, many jurisdictions impose specific structural requirements on life settlement transactions. These may include:

• Mandatory licensing for life settlement brokers and providers
• Required written disclosure forms outlining alternatives and risks
• Compensation transparency requirements
• Anti-fraud safeguards
• Defined rescission timelines
• Privacy protections governing medical information

Because life settlement regulation varies by state, policyholders should confirm applicable requirements through their state insurance department before proceeding. This reinforces that the transaction occurs within a regulated legal framework — not an informal private agreement.

The U.S. Government Accountability Office (GAO) has noted that life settlements are primarily regulated at the state level through insurance departments.

After Closing: Ongoing Monitoring

After closing, limited status verification may occur. In many states, the frequency of contact is regulated and restricted — often limited to periodic verification, such as once every 6 to 12 months, depending on jurisdiction.

Privacy laws restrict both the scope and frequency of communications. Monitoring exists solely for administrative purposes related to policy maturity and does not permit unrestricted inquiry.

How Long Does the Process Take?

Timelines vary, but a typical life settlement process may take:

• 4 to 12 weeks
• Sometimes longer if medical records are delayed
• Longer for complex policy structures

Delays often occur due to carrier response times, medical record retrieval, or complex underwriting cases. Rushed transactions are discouraged. An informed decision is more important than speed.

What Determines the Settlement Amount?

Settlement valuation is not arbitrary negotiation. Institutional buyers typically rely on discounted cash flow modeling, actuarial life expectancy projections, premium load analysis, and internal rate of return calculations.

Several core factors drive valuation:

• Age of insured
• Health status
• Policy face amount
• Premium obligations
• Policy type
• Carrier financial strength
• Duration the policy has been in force

Read More: How Are Life Settlements Taxed?

Important Considerations Before Proceeding

Before accepting any offer, individuals should carefully evaluate:

• Estate planning goals
• Family expectations
• Public benefit eligibility (e.g., Medicaid)
• Long-term financial planning impact
• Tax exposure

Once completed, the transaction permanently transfers the death benefit. This is not a reversible planning decision beyond the rescission window.

Read More: Surrender vs. Life Settlement: Key Differences

Final Thoughts

The life settlement process is structured, regulated, and documentation-intensive. It is not casual, informal, or instantaneous.

It involves underwriting, compliance safeguards, state oversight, and legally binding ownership transfer. For some policyholders, it may represent an additional financial option. For others, it may not be appropriate.

Understanding the process is the first step toward making an informed decision — whether that decision is to proceed or to walk away.

Ready to start the process with a trusted partner? Start an Educational Review with us today.