What is typically the value of a life settlement compared to the death benefit?

A life settlement typically has a value that is less than the death benefit of the policy. This occurs because the life settlement market primarily evaluates the policyholder's life expectancy and the premiums that would need to be paid to keep the policy in force until the insured passes away.

Investors purchase life insurance policies through life settlements at a discount, anticipating that they will collect the death benefit upon the insured’s passing. They take into account various factors, including the age and health of the insured and the time frame in which they expect to receive the death benefit. Because of these calculations and the inherent risks involved, investors will offer less than the face value of the policy, resulting in a settlement that is lower than the original death benefit.

The other options imply that a settlement would be equal to or greater than the death benefit, which does not reflect the typical financial dynamics of life settlements. Therefore, choosing that the value of a life settlement is less than the death benefit aligns with the common practice within the life insurance and financial markets.