when an insured party can no longer afford their insurance policy they can sell it for a certain amount of cash to an investor usually an institutional investor the cash payment is primarily tax free for most policy owners the insured person essentially transfers ownership of the policy to the investor as we noted above the insured party receives a cash payment in exchange for the policy more than the surrender value but less than the policy s prescribed payout at death 
by selling it the insured person transfers every aspect of the life insurance policy to the new owner this means the investor who takes over the policy inherits and becomes responsible for everything related to the policy including premium payments along with the death benefit so once the insured party dies the new owner who becomes the beneficiary after the transfer receives the payout life settlements are legal for the most part in the u s because life settlements involve a transfer by the policy owner they do not amount to stranger owned life insurance stoli which is illegal 