when someone becomes terminally ill and has a very short life span they may sell their life insurance to someone else in exchange for a large lump sum of money the buyer takes on the premium payments becoming the policy s new owner after the insured party dies the new owner receives the death benefit 
viatical settlements are generally riskier because the investor basically speculates on the death of the insured even though the original policy owner may be ill there s no way of knowing when they will actually die if the insured person lives longer the policy becomes cheaper but the actual return becomes lower after factoring in premium payments over time special considerationslife settlements effectively create a secondary market for life insurance policies this secondary market has been years in the making there have been a number of judicial rulings that have legitimized the market one of the most notable being the 1911 u s supreme court case of grigsby v russell john burchard wasn t able to keep up the premium payments on his life insurance policy and sold it to his doctor a h grigsby when burchard died grigsby tried to collect the death benefit the executor of burchard s estate sued grigsby to get the money and won but the case ended up in the supreme court in his ruling supreme court justice oliver wendell holmes likened life insurance to regular property he believed the policy could be transferred by the owner at will and had the same legal standing as other types of property like stocks and bonds in addition he said there are rights that come with life insurance as a piece of property who does a life settlement broker represent a life settlement broker represents the policy owner and may be bound by a fiduciary duty to them the broker s job is to find the highest bidder for the policy 