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UPDATE 1-AIG shops $2 bln death benefits portfolio -sources

(Adds comment from AIG's chief financial officer and details about "legacy portfolio," paragraphs 3, 7, 8)

Aug 15 (Reuters) - American International Group Inc wants to sell a $2 billion portfolio of life settlements that would pay out when sick or elderly customers die, two people familiar with the matter said.

AIG, the largest commercial insurer in the United States and Canada, is working with investment bankers at Goldman Sachs Group Inc to unload the assets, said the sources, who were not authorized to discuss the negotiations publicly.

Apollo Global Management LLC is looking at buying at least some of the policies, one of the sources said. Parties including Blackstone Group LP have purchased similar life settlements, or "death benefits" from AIG in previous transactions, the people said.

Representatives for AIG, Goldman, Apollo and Blackstone declined to comment.

Large private equity firms like Apollo have carved out a niche business in acquiring death benefits, typically sold by terminally ill or elderly customers who need cash. Investors try to buy the policies at a price that is less than the payouts they would receive when the customers die.

The potential sale comes as AIG nears the end of a years-long divestiture spree of businesses around the globe that has cut its balance sheet by more than half since 2007. New Chief Executive Officer Brian Duperreault, is focused on growing core commercial and consumer businesses.

But there is still a small pocket of older business lines, known as AIG's "legacy portfolio," that the insurer is trying to sell or wind down, which includes the life settlements.

"We continue to have commitment and discipline in executing our legacy strategy," said Sid Sankaran, AIG's chief financial officer, during an Aug. 3 call with analysts after the insurer announced its second-quarter earnings results.

The company previously identified death benefits as non-strategic. It already sold a $1.4 billion death benefits portfolio at a loss of $89 million, and valued remaining assets at $2.1 billion as of June 30.

AIG also sold a Japanese life insurance subsidiary in April, an Asian mortgage insurance business in July and is in the process of completing a sale of certain operations in Latin America. (Reporting by Lawrence Delevigne and Olivia Oran in New York, additional reporting by Suzanne Barlyn; Editing by Lauren Tara LaCapra and David Gregorio)