Meet Jose, Age 60 with a $100,000 policy.

Jose, 60, has been a construction worker all his life. With a small pension, Jose can barely afford his rent and medical bills, let alone the life insurance premiums.

Until fairly recently, there were only two options available to seniors like Jose: let the policy lapse (by stopping payments altogether) or surrender the policy to his life insurance provider for a fraction of its face value.

The advantage of life settlements is that seniors can gain a fair market value for their policy through competitive bidding by various Life Settlement Providers. For Jose, it is capitalism at its best.

Generally, a life settlement is a much better option than letting your policy lapse or surrendering it for the cash surrender value.

Policy lapses account for about 8% of all life insurance policies. When policies lapse, the insurance company promptly and gladly terminates your insurance contract because you have failed to hold up your end of the bargain, which is paying for your monthly or annual premiums. The policy holder is the big loser in this scenario since she loses all his previous premium payments.

Surrendering your policy to your life insurance provider for a lump-sum is another option. There is a very complicated formula for calculating the surrender value; but the cash surrender value generally reflects the cost of upkeep for the policy until its expected maturation (upon Jose's death).