Life settlements laws  vary from state to state, without regulation in the life insurance industry. The life settlement industry began near the end of the 20th century. Known as the viatical industry, such settlements sell or transfer existing policies to new owners for a lump sum in situations where the policy holder or the insured has a limited life expectancy. Life settlements are similar, but the policy holder or insured does not have a life-threatening condition.

Texas Life Settlement Laws

According to the Texas Department of Insurance, state law allows residents to consent to another individual purchasing insurance on their life. Life insurance policy owners are also permitted to sell their life insurance policies to life settlement or viatical companies. Such providers must hold a certificate of registration to operate a business in Texas. It advises those considering such sales to verify the license of such brokers at the department's website, and/or to get legal advice before agreeing to the policy's sale. It warns that giving false information on an insurance application could result in prosecution for fraud. The state insurance department offers this caveat: "If it seems too good to be true, it probably is."

Illinois Life Settlement Laws

According to a law enacted in 2009 and effective Jul. 1, 2010, Illinois does not permit Stranger-Oriented Life Insurance Transactions, known as STOLI transactions. Illinois' life settlement law, which also addresses viatical law settlements, requires licensing and disclosure information be given to consumers seeking to sell their life insurance policies by providers of life settlement policies. Standards for advertising of life settlement and viatical businesses are included in the legislation. The law states that "all viatical settlement contracts shall provide the viator with an absolute right to rescind the contract before the earlier of 30 days after the contract is executed or 15 days after the settlement proceeds have been paid."

California Life Settlement Laws

In 2009, Governor Arnold Schwarzenegger signed a law prohibiting the sale of life insurance settlements to strangers. According to Life Settlement Awareness, "California law now defines a life settlement as the sale of an existing life insurance policy to a third party for more than its cash surrender value but less than its net death benefit." The law also prohibits any policy owners from entering life settlements within two years of a policy's issuance. It prohibits life insurance agents from telling clients that life settlements are an alternative to receiving a life insurance policy's cash value.

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