Life settlements are when you sell your life insurance policy to someone else. You get immediate cash, and they collect the value of the policy when you die.
There's a similar type of transaction, known as a viatical settlement, in which a terminally ill person sells his or her life insurance to someone else.
Both these types of transactions are mentioned as options in a notice that life insurers are required to send to some Washington policyholders.
According to a New York Times article published last month, the fast-growing life settlements business swelled to $12 billion in transactions by 2007, but has dropped off dramatically, with only $3.8 billion worth of policies changing hands in 2010. Life settlements brokers maintain, however, that with trillions of dollars in life insurance out there, the industry is still in its infancy.
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