Sell Your Life Insurance Policy in Colorado | 2026 Life Settlement Guide

You bought a life insurance policy years ago for a real reason. Maybe you had a mortgage, loved ones at home, a business partner, or an estate plan your lawyer was very proud of. Fast forward. The kids are grown, the business is different, the estate looks better, and the premiums feel like dead weight. And those medical bills are a killer.

Most Colorado policy owners do not realize they can sell a life insurance policy instead of lapsing it or taking a modest surrender value. When the insured is older and not seriously ill, that is usually called a life settlement. When there is a qualifying serious or terminal illness, it is usually treated as a viatical settlement.

Colorado does not treat this as a back alley transaction. There is a formal viatical and life settlement framework in the insurance code. The state licenses the buyers, sets disclosure rules, requires independent escrow, and gives you a defined rescission window if you change your mind. If your policy qualifies, it is worth seeing what the market would pay before you walk away from it.

Is It Legal to Sell My Life Insurance Policy in Colorado?

Yes. Selling a life insurance policy through a regulated settlement is legal in Colorado.

Colorado's viatical settlements law covers the sale of policies for a lump sum that is more than the cash surrender value but less than the death benefit. The law sits inside the life insurance part of the insurance code and is overseen by the Colorado Division of Insurance.

Key points in plain language:

• You are supposed to deal with licensed viatical or life settlement providers, not random investors.
• Providers must follow state rules on licensing, forms, disclosures, advertising, escrow and fraud.
• Life insurance producers who want to work on settlement transactions have their own rules and notice requirements.

In practice, you work with a licensed provider and often with a broker who represents you and shops your case to several providers. The institutional buyers sit behind that structure.

How Long Do I Need to Own My Policy Before I Can Sell It?

Colorado has a clear two year rule.

It is a violation of the Colorado viatical settlements law for anyone to enter into a viatical settlement contract within a two year period that starts on the date the policy was issued, unless a specific exception applies.

Common exceptions include:

• A policy that was converted from group coverage or from another policy, where the combined time under the old and new insurance coverage is at least twenty four months.
• Situations where the insured or owner became terminally or chronically ill during that period.
• Certain closely held business situations, where the policy is tied to a buy sell or stock redemption agreement that was in place when the policy was issued and the owner is leaving the business.

The default assumption in the Colorado market is simple. If the policy is more than two years old, the timing question is usually cleared. If it is younger than that, you need to fit one of the exceptions and prove it.

Who Actually Buys Policies in Colorado?

The capital behind these transactions is not your neighbor down the street.

On the back end, buyers tend to be:

• Life settlement funds
• Pension and institutional asset managers
• Family offices and private credit strategies that want non correlated returns

They buy policies as financial assets whose return is driven by three things. How much they pay you today. How much they will pay in premiums until the insured dies. How long that actually takes. Daily stock market noise is not the main driver.

On the front end, as a Colorado policy owner, you are not dealing with a fund term sheet. You contract with a licensed viatical or life settlement provider. That provider may finance itself with funds and other institutional structures, but that is behind the curtain.

You can also use a broker who represents you, not the provider. A decent broker will take your policy to several providers and try to force them to compete for it.

Safety Concerns And The Hitman Question

Every once in a while someone asks the blunt question. If I sell my policy to a fund that gets paid when I die, does that put a target on my back?

It is a natural worry, but it does not line up with how this market actually works. For a deeper look at why this concern is unfounded, see our article on the "hitman" question.

Real buyers are regulated institutions. Think pension funds, asset managers, specialist life settlement funds, and family offices that live under compliance, audits and regulators. They buy large pools of policies, not one or two bets on a single person. Your policy is a tiny piece of a diversified portfolio. No one is sitting in a room watching your file and waiting for news.

More importantly, crime would completely destroy the investment. If someone were foolish enough to try something like that, the claim would be frozen, law enforcement would be involved, and the policy would become radioactive. The buyer would lose their capital, their license and their business, and the people involved would be looking at serious prison time. That is the exact opposite of what professional investors want.

There are plenty of real risks in life. Selling a policy through a regulated life settlement process does not meaningfully change your exposure to violent crime. The buyer wants a clean, boring actuarial outcome, not drama. If this were a real world problem you would see patterns of cases and headlines over the last few decades. You do not, because serious firms do not play games with that line.

If this worry is on your mind, it is better to treat it as something to acknowledge and then put aside, not as a deciding factor in whether to explore a settlement.

Retained Death Benefit And What Happens If The Buyer Stops Paying

In some transactions you do not sell the entire policy. Instead, you take part in cash today and keep a slice of the future death benefit. That structure is usually called a retained death benefit. The buyer agrees to carry the full premium payment load and, when the insured passes away, your family gets the retained portion without ever having to write another check.

The obvious follow up question is what happens if the fund or buyer stops paying premiums in ten years. If the policy lapses, your retained benefit disappears with it. That is a real risk, and it belongs in the contract, not swept under the rug.

Well structured deals handle this with clear protections. Common approaches include giving you the right to step in and assume the policy if premiums are not paid on time, or if the fund winds down or fails. In practice that can mean a clause that says if premiums are not funded by a certain date, ownership can revert or you can elect to take over and keep the policy in force by paying premiums yourself. Serious buyers also use professional servicing companies and advance notice requirements so you, your adviser, or your lawyer get notified long before coverage is at risk.

The point is that you do not have to simply hope the fund behaves. You can ask, in plain language, what happens if premiums are not paid, when you are notified, and what your rights are to step back in. If you are doing any kind of retained death benefit, those answers should be written into the settlement documents before you sign, so your family is not relying on a handshake twenty years from now.

Wondering what your policy might be worth in Colorado?

How Much Is My Policy Worth in Colorado?

Colorado law does not fix a payout percentage. There is no table that says a one million dollar policy must always get a specific number. It is a market outcome on top of a regulated process.

The usual drivers matter most:

• Age of the insured
• Health status and realistic life expectancy
• Type of policy (whole life insurance may be different than term life policies) and life insurance company strength/ratings
• Premium costs now and in the future
• Face amount and riders

For senior life settlements in practice, it is common to see offers that land somewhere in a wide range, often from roughly ten percent up to around fifty percent of the face amount for policies that buyers actually want. Better life expectancy for the investor and more efficient premiums push you toward the high end of the band. Younger ages, long life expectancy and ugly premium patterns push you down.

For viatical style cases, where the insured has a serious illness and a short life expectancy, the percentage of face can be much higher. Industry and academic sources that study viatical markets describe deals where short life expectancy cases can command offers in the range of sixty percent to eighty percent of face in some situations, especially when premiums are low. Colorado's framework is built on the same model law concepts those sources describe.

Illustrative examples; may not reflect the value of the policy.

Example One

• Policy: Two million dollar universal life policy
• Insured: Age seventy eight, male, moderate heart disease and diabetes, life expectancy around four years
• Surrender value: About thirty two thousand dollars
• Settlement offer: Around four hundred eighty thousand dollars

That is roughly twenty four percent of face value and fifteen times the surrender value.

Example Two

• Policy: One million dollar universal life policy
• Insured: Age eighty three, female, history of breast cancer now stable, life expectancy around six years
• Surrender value: About twenty one thousand dollars
• Settlement offer: Around two hundred twenty thousand dollars

That is roughly twenty two percent of face and more than ten times the surrender value.

Example Three

• Policy: Five hundred thousand dollar convertible term policy
• Insured: Age seventy four, male, prior localized colon cancer now in remission, life expectancy under seven years
• Surrender value: No surrender value
• Settlement offer: Around ninety thousand dollars

That is about eighteen percent of face for a contract that would be worthless if it simply lapsed.

Key Consumer Protections in Colorado

Colorado's viatical settlements law is not window dressing. It gives you several meaningful protections.

Rescission Window

You have the right to rescind a settlement for a limited period of time after closing.

You can rescind until the earlier of thirty calendar days after everyone has signed the settlement contract, or fifteen calendar days after you receive the settlement proceeds. To actually unwind the deal, you must return the money and reimburse the buyer for any premiums, loans and loan interest it paid, within the timeframe the statute allows after that rescission period ends.

If the insured dies during the rescission window, the law treats the contract as rescinded as long as those amounts are repaid within the time allowed, so the death benefit flows back to your side.

Escrow and Timing of Payment

Colorado requires use of an independent escrow or trust account for settlement proceeds.

The provider cannot just hand you a personal check and call it a day. The law requires that funds flow through an escrow account at a regulated financial institution, and it requires that the contract identify the escrow arrangements.

Once the life insurer or group administrator confirms in writing that ownership and beneficiary changes are complete, the provider must cause funds to be sent to you within three business days. That timing is not optional. It is written into the disclosure that you sign.

Licensing and Forms

Only licensed viatical settlement providers are supposed to buy policies in Colorado. Licensing and form approval sit with the Division of Insurance. That includes oversight of the contracts, disclosure documents and advertising used to market settlements to Colorado residents.

Insurer Cooperation and Verification of Coverage

The law also reaches insurers. There are rules around how quickly insurers must respond to verification of coverage requests from providers and producers, and around how they handle ownership and beneficiary changes in settlement situations. That is meant to stop carriers from quietly sabotaging lawful transactions by sitting on paperwork.

How the Colorado Life Settlement Transaction Process Actually Works

If you strip away the legal language, the Colorado process is pretty straightforward.

Step One: Initial Screen

You or your advisor provide basic information about the policy, the insured's age and health history, the premiums and the carrier. The broker or provider screens for size, age, health, product type, and the two year rule with any possible exceptions.

Step Two: Authorizations and Records

If the case looks promising, you sign authorizations allowing the provider to order medical records and to get detailed policy information from the insurer. This step is almost always the slowest part of the process. Doctors and carriers do not move quickly on their own.

Step Three: Underwriting and Pricing

The provider reviews medical records, orders one or more life expectancy estimates, and runs projections of future premiums and cash flows. The pricing team then backs into a purchase price that fits the investors' target return.

Step Four: Offers and Negotiation

You receive a written offer that spells out the gross purchase price. If a broker is involved, you should also see exactly how the broker is being paid. Serious brokers try to get competing offers from more than one provider so you can see a range.

Step Five: Contracts and Escrow

If you accept an offer, you sign the settlement contract, the disclosures, and the carrier's ownership and beneficiary forms. The provider funds the escrow account. The insurer processes the ownership change and beneficiary change and issues a written confirmation.

Step Six: Payment and Rescission Period

Within three business days after the provider receives that written confirmation, the escrow agent releases the settlement proceeds to you. Your rescission window runs until the earlier of thirty days after everyone signed the contract, or fifteen days after you received the proceeds. During that period you can unwind the deal by returning the money and reimbursing the buyer for any premiums, loans, and loan interest it has paid.

From first conversation to money in your account, most clean Colorado cases land in a range of a few weeks to a couple of months, depending mostly on how quickly medical records and carrier responses are obtained.

Disclaimer: The information provided in this article is for general informational purposes only and does not constitute legal, financial, or professional advice. Life settlement regulations vary by state, and this content should not be relied upon as a substitute for consultation with a licensed professional. Please consult with a qualified attorney, financial advisor, or licensed life settlement broker before making any decisions regarding the sale of a life insurance policy.