For those over 70 and not near death's door, a blossoming offshoot of the life insurance industry has made it possible to get cash in trade for policies that are no longer needed.

The kids are grown and financially successful, so they're OK. The house is paid for, so no need leave money for that. Or, say your life insurance premiums have grown too costly to maintain and you're considering letting the policy lapse to save money. Maybe you need cash to investments after the recent bear market's bitten into your retirement "kitty."

These are some reasons people are looking into the little-known but growing practice of life settlements, or selling their life insurance policies to the highest institutional bidder. The seller gets cash now. The buyer starts paying the premiums and gets the death benefit later.

Typically, a good candidate has a fairly high income, a fairly large insurance policy, and finds that the need for which they bought their life insurance doesn't exist any more, said Santa Barbara independent insurance agent, E. Russell Smith, who handles life settlements for local clients.

Life settlements were virtually unheard-of until the mid-1980s when the AIDS pandemic sent a wave of terminally ill policyholders seeking cash settlements to pay their medical expenses or for other needs during their last weeks.

According to industry trade groups, a number of reputable companies saw the potential. In 1998, some began pooling assets and buying policies from people with anywhere from two to 10 years of expected life-span.

A whole new secondary life insurance policy market and a new financial option for millions of policyholders was born.

The nationwide practice, which is not regulated in many states including California, has suffered from unscrupulous players. Some paid policyholders too little. Others, sold shares of policies to individuals for a "guaranteed" hefty return that hasn't materialized.

But a number of nationwide business and financial publications acknowledge a legitimate new industry involving large institutional purchasers who "bid" on proffered policies.

The life settlement market grew from $200 million in purchased face amount to an estimated $1.7 billion between 1998 and 2002, according to life insurance consultants Erich Sippel and Co., in a report published in Trusts and Estates magazine.

According to reports in industry and financial publications, clients should get more from a life settlement than the cash redemption value of a policy surrendered to the company they bought it from. With term policies, which have no cash redemption value, "I've seen $1 million policies go for $200,000 to $300,000," Mr. Smith said. "That's not bad when you'd get zero" for letting it lapse.

With an appropriate client, the procedure is simple, Mr. Smith said. "It's very important to have an ethical agent."

The agent essentially gets policy appraisals from several institutional funders based on the policy particulars and the client's medical information. After the policyholder selects a buyer and is paid off, the funder takes over the insurance premiums and eventually receives the cash death benefit. There are consumer cautions, however.

Policyholders should consult their financial advisor first, suggests an analysis on the Consumer Reports Web site. The family should also be included, Mr. Smith said. "I feel all parties should be involved in the decision."

Clients also should be aware there are no guarantees that their medical information will remain confidential, and that a cash buyout could disqualify them from Medicare or trigger tax consequences, according to the Consumer Reports evaluation

email: mgreen@newspress.com