Are You Talking About Life Settlements?

What You Need to Know

About 3,200 policies were settled in 2023.
The life settlement proceeds were about six times the surrender value.
The increase translated into $707 million in extra payments.

On April 20, 2009, we began publishing articles about life settlements.

At that time, it was a relatively new transaction and many insurance companies actively discouraged or barred their producers from negotiating a life settlement on behalf of their clients.

And today, in a now well-regulated industry, thousands of successful life settlements have been transacted, bringing billions of dollars to policyholders.

When done for the right reason, as an alternative to the lapse or surrender of a policy, a life settlement can provide significant benefits to the policyholder.

The Bad News

Sadly, 15 years later, many producers still find themselves in the same position, unable to help their clients with a life settlement transaction as many insurance companies or broker-dealers continue to inhibit their producers.

And we are still writing about life settlements, trying to create awareness and to educate producers, accountants, attorneys and trust officers.

So why do some life insurers still block life settlements? A major reason is because life insurance companies would prefer that policies get lapsed or surrendered, rather than staying on the books until a death claim occurs.

Yet, the number of policies that get settled each year, as a percentage of in force business, is so small that it really shouldn’t have a significant impact on insurance company financials.

But a life settlement could have a very significant impact for a policyholder or their family needing money for medical services, to pay bills, to supplement income, to provide educational funds for a grandchildcor perhaps to help maintain their life with dignity.

The Numbers

The 2023 Life Insurance Settlement Association’s Data Collection Survey found that during the year approximately 3,200 policies were settled.

As a result, consumers received $842 million in life settlement proceeds which represents about 6 times more cash ($707 million) than they would have received if they just surrendered their policies.

But these numbers should certainly be even higher! Even after all this time, consumer awareness is still not what it should be.

With life settlement companies running commercials and ads, the option of a life settlement is becoming more well-known.

As folks are hearing of this option, they are beginning to ask their advisors if they can help with this transaction, but they shouldn’t have to ask.

You Go First

Advisors should be aware of their clients’ circumstances and be able to recognize the seven most common situations where a life settlement could be appropriate:

1. The sale of a business or other liquid asset.

2. Business owner retiring or exiting from the business.

3. A decline in estate value and/or a decrease in estate tax liability.

4. Term policies or riders that are about to expire, lose their conversion privilege or come to the end of the level premium guarantee period.

5. Retirement.