For more than 20 years, the secondary market for life insurance has provided a forum for policy owners to sell their unwanted life insurance policies for an immediate cash payment. The transaction is known as a “life settlement.”

Who does a life settlement broker represent?

During a life settlement transaction, the policy owner transfers ownership of the policy to an institutional investor for more than its cash surrender value, but less than its net death benefit. The policy owner receives a cash payment from the institutional investor that generally averages three to four times the policy’s cash surrender value. In some cases, the cash payment can reach as high as 60% or more of the policy’s face value. The investor who purchased the policy continues to make the annual premium payments and collects the death benefit when the insured passes away.

Below are just some of the many determining factors that investors consider before agreeing to purchase a life insurance policy:

  1. Amount of death benefit
  2. Life expectancy of the insured
  3. Type of policy
  4. Rating of the insurance carrier who underwrote the policy
  5. Cost for annual premiums
  6. Policy loans
  7. Cash build-up

The legal foundation for life settlements is based on a decision by the U.S. Supreme Court in 1911 (Grigsby v. Russell), which deemed life insurance policies a personal asset and recognized the rights of the life insurance policy owners to transfer ownership of their life insurance policies – just as with any other personal asset they might own.

Life settlements are considered by many professional advisors and senior consumers as an innovative financial and estate planning tool.  When conducted in accordance with industry best practices, the transaction involves a life settlement broker who agrees to represent the best interests of the policy seller. In doing so, the broker will shop the case to multiple funding sources in order to obtain the highest possible cash settlement for the seller.

Recently, the life settlement market experienced a resurgence as aging baby boomers recognize the opportunity to optimize the economic value of life insurance policies that are no longer needed for their original purpose. In addition to broader consumer awareness which has taken place over the past 20 years, the growth of the industry is also attributed to a more stable regulatory environment that protects consumers.

In terms of the regulatory environment, 43 states and the territory of Puerto Rico regulate life settlements, affording approximately 90% of the United States population protection under comprehensive life settlement laws and regulations. 

To further protect consumers, a handful of states have recently enacted life settlement disclosure laws requiring that policy owners be made aware of life settlements as a possible alternative to lapse or surrender. Federal and state government agencies have begun to recommend life settlements as a solution to pay for long-term care expenses or to offset public funds used for Medicaid nursing home care.

According to the American Council of Life Insurers, nearly nine out of ten universal life insurance policies are lapsed or surrendered. In addition, industry data indicates that nearly 99% of term life insurance plans are lapsed without actually paying out a death benefit.  For seniors who may be feeling the burden of expensive premium payments for a policy they no longer need, it makes little sense to allow the policy to lapse if they can receive a cash settlement.

In short, the secondary market continues to gain traction because it is a win-win-win situation for the various parties involved in the transactions:

  1. The policy seller is able to monetize a static insurance asset by receiving a substantial cash settlement far greater than the surrender value for policy no longer wanted.
  2. The insurance company will continue to collect annual premiums paid by the institutional investor. Some life insurance companies have also become investors in the secondary market.
  3. The investor will receive the proceeds from the death benefit when the insured passes away. Investors also like the fact that the longevity risk associated with life settlements involves a non-correlated asset class that is more predictable and not impacted by the volatility of the stock market.

If you are interested in learning more about life settlements, we recommend you access our brochure titled, “10 Reasons Seniors Choose Life Settlements.” This 17-page publication provides valuable insight on the following:

  1. Why Do Seniors Sell Their Policies?
  2. What Are the Qualification Factors?
  3. How Much of a Cash Settlement Can I Expect to Receive?
  4. How are Life Settlements Regulated?
  5. What is the Role of a Life Settlement Broker and Why Do I need one?


For more than 20 years, the secondary market for life insurance has provided a forum for policy owners to sell their unwanted life insurance policies for an immediate cash payment. The transaction is known as a “life settlement.”

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