2023: The Road Ahead for Life Settlements

The last several years have been challenging for the economy in every possible respect. But as we look at the road ahead, we are encouraged that the life settlement market is uniquely positioned for continued growth.

This article explores the future demand for investment capital, trends in the regulatory landscape, the anticipated transaction volume, and the types of policies that are selling.

Investment Capital:  Demand Continues

While the equity and bond markets suffered double-digit losses last year, investments in alternative assets continued to rise. New investment capital flowed into the life settlement asset class due to its minimal correlation to the stock and bond markets.

As we’ve noted in previous writings, when new sources of alternative investment capital flow into the market, the purchasing offers from buyers become more competitive. This supply and demand trading environment benefits policy sellers by maximizing the value of unwanted policies. And, it benefits the client’s licensed agent who may earn compensation on the transaction.

As we head into 2023, we concur with industry experts that the secondary market is financially sound and will continue to attract an ample supply of investment capital to purchase policies.

Regulatory Landscape:  Consumer-First and Fiduciary-Duty Focused  

State Regulations – Insurance Professionals

Life settlements continue to be regulated at the state level where government oversight has evolved and matured over the past 20 years. Presently, forty-three states and the territory of Puerto Rico currently have regulations in place regarding life settlements.

Examples of current state regulations range from licensure to transparency. For example, most state regulatory initiatives require that life settlement brokers and providers be licensed; consumers receive disclosure of all offers and counter offers; proper disclosure regarding the broker’s commission; information regarding alternative to selling a policy; and the approval of forms for the life settlement contract, disclosures, and escrow agreements.

This broad and stable regulatory environment, which has a clear focus on the consumer’s best interest, has helped bolster consumers’ confidence in the market.

Looking ahead, we anticipate that future state regulatory initiatives will continue to build upon the existing framework of consumer-first protections. 

Fiduciary Professionals

In the early years of the industry, recommending and facilitating life settlement transactions for seniors were primarily within the domain of state-licensed insurance agents.

But over the past 10-15 years, that has changed.  We are now seeing greater numbers of fiduciary professionals (e.g. financial advisors, broker-dealers, attorneys, CPAs and CFPs, etc.) embracing life settlements. This trend is partially due to the implementation of fiduciary rules over the past few years by regulatory bodies (such as S.E.C. and the CFB Board) that strengthen the requirement for certain advisory and fiduciary professionals to recommend financial solutions that are in their clients’ best interests. 

Many of these professionals believe that serving the client’s best interests often means recommending a life settlement if the solution appears to be the most favorable option. For example, this past year we transacted a life settlement for a CFP who decided to sell his own policy in order to gain the knowledge he needed to competently advise his senior clients about the financial benefits of the transaction.

Market Volume:

The increasing number of life settlements transacted each year is a clear indication of the value it provides to policy sellers. Most industry experts agree that the volume of future transactions will continue upward. Factors that are driving the market include an ever-increasing aging population, continued inflation, the need for cash, and greater awareness that selling a policy is a legal option.

In 2021, members of the Life Insurance Settlement Association completed more than 3,000 policy sale transactions. As a result, seniors who sold their policies walked away with cash settlements totaling more than $750 million.

Although the numbers are not yet available for 2022 transactions, members of LISA remain confident that the market experienced positive growth for a variety of reasons. This past year took a toll on many seniors as rising inflation eroded their purchasing power.

As a result, many opted to pull the plug on costly insurance premiums by selling policies they could no longer justify or afford.

Looking ahead, we believe transaction volume will continue to grow as greater numbers of seniors turn to life settlements to pay for long-term care and to supplement their cash flow.

Types of Policy Sales: What’s Hot?

Universal Life policies are essentially the target market for most life settlement transactions. However, over the past year we have experienced an increase in GUL policies and Term Policy conversions.

As company co-founder Jeff Hallman recently noted, “What it comes down to is every policy sells if the arbitrage works. At Asset Life Settlements, our average policy death benefit is $2-3 million, but we work on cases where the death benefit can be as low as $100,000 or as high as $25 million per insured.”

Take Away

Whether you are a licensed insurance professional or a professional advisor bound by your fiduciary duty to the client, it’s important to remember that a life insurance policy is a personal asset that should be managed and optimized to benefit your client’s best interests.
The secondary market for life insurance is well-capitalized and is a safe and legal option for seniors seeking a sensible exit strategy from an unwanted asset.

To request an immediate pricing estimate on your client’s policy, call us at 855-768-9085.