Consumer Advisors

Why Sell?

Life insurance is a core part of the American financial fabric.  

According to the ACLI 2013 Life Insurance Fact Book, “People buy life insurance to protect their dependents against financial hardship when the insured person, the policyholder, dies… A business may purchase life insurance to protect against the economic loss that would result from the death of the owner or a key employee.”  

Life insurance is an important investment in many seniors' portfolios and businesses strategies.

There are 38 million life insurance policies owned by American seniors over the age of 65, which have a collective face value of more than $3 trillion. An individual, trust or business that owns a $500,000 policy with annual premiums of 4% of the face value will invest $20,000 each year to keep the policy inforce. Over five years, that amounts to $100,000 and over ten years it comes to $200,000.  

Reviewing and analyzing whether a life insurance policy continues to be needed or is affordable is as important as reviewing and reallocating all assets held by consumers and businesses.

Did you know?

  • An astounding $100 billion+ in face value of life insurance is lapsed or voluntarily surrendered each year by seniors over the age of 65. 

  • A 2010 survey prepared for the Insurance Studies Institute indicated that 90 percent of seniors who have let a policy lapse would have considered selling it if they had known a life settlement was an option.  In addition, 49 percent of advisors cited lack of knowledge as the reason for not recommending life settlement option to clients.

  • A 2012 survey prepared for The Lifeline Program (conducted by ICR) indicated that 79 percent of clients feel advisors should inform them about the life settlement option. Another study conducted in 2013 by the same group indicated that 55 percent of seniors allowed their life insurance policies to lapse, viewing it as a liability instead of an asset.”


When a life insurance policy is no longer needed, wanted or affordable the option of selling it can maximize the asset value and minimize losses for your clients.

“Advisors have a moral, if not a fiduciary responsibility, to understand and inform their clients about options available with unneeded or unaffordable life insurance policies, including a possible sale of the policy.”  

Darwin M. Bayston, CFA, President and CEO, Life Insurance Settlement Association

What is a life settlement?

A life settlement is the sale of a life insurance policy to a third party for a value in excess of the policy’s cash surrender value, but less than its face value, or death benefit.  A policy owner receives a cash payment, while the purchaser of the policy assumes all future premium payments and receives the death benefit upon the death of the insured.  

There are numerous reasons your clients may consider selling a life policy:

  • The premiums are no longer affordable.

  • The need to replace lost income in case of death of the insured no longer exists.

  •  A term policy may be reaching the end of the coverage period.

  • Funds are wanted to improve a retirement lifestyle.

  • The need for funds to pay estate taxes no longer applies.

  • The need to eliminate future premiums payments but keep some life insurance.    

  • There is a need for resources to pay for health expenses and long-term care. 

  • A business no longer needs key-man insurance. 

  • Premiums of policies owned by trusts continue to rise. 

The sale of a life policy is not for everyone. 
There are alternatives other than selling a policy that may be appropriate for a policy owner’s circumstances:

  • Keep the policy inforce through a loan or use of the cash surrender value.

  • Seek an accelerated death benefit, if available.

  • Assign the policy as a gift or charitable contribution.

  • Covert a term policy to permanent insurance.

  • Reduce the death benefit with a lower face value and lesser premiums.

  • Lapse or surrender the policy.


Candidates for life settlements are typically age 65+ or older and own a life insurance policy with a face amount in excess of $100,000.

 A settlement is only possible when the policy’s market value exceeds the cash surrender value.
Key factors in determining the market value of a policy are the death benefit, the cost of future premiums, and the life expectancy of the insured.

Life expectancy is the key component in determining the market value of a life settlement transaction.

The lower the premiums and the shorter the life expectancy, the higher the selling price. This is because the greater the amount of premiums that need to be paid and the longer the investor must wait for the death benefit, the lower the policy value.

Key characteristics of the settlements market generally include:

● Insureds age 65 or older
● Insureds with life expectancies of less than 12 years
● Insured may have one or more health impairments
● Universal life, term life and 2nd to die policies are most common settled.

It should be noted that a life settlement is not an option for every policyowner.

Policy Value

The value of an insurance policy being sold is based on the present value of the expected cash flows over the life of the investment.

When a life insurance policy is sold, the seller receives a cash payment.  The buyer pays all future premiums and receives the death benefit upon the death of the insured.

There are four components to determining the value of a life policy"

  1. Amount of the death benefit
  2. Remaining expected life of the insured
  3. The amount of premiums to be paid until the death benefit is paid
  4. The discount rate or investor required rate of return

The amount received from a policy is a mathematical determination of taking into account the impact that each of the factors has on the value.  The higher the premiums, the longer the life expectancy and the higher the required investor’s return, the lower the value of the policy. Conversely,  the lower the premiums, the shorter the life expectancy and the lower the investor’s required return, the higher the value of the policy.  

Every case is different. In all cases, the death benefit is known and, in most cases, the amount of annual premium payments can be determined within a reasonable probability. The expected remaining life of the insured is the factor with the greatest variability and therefore represents the greatest risk to the investor. Predicting how long any one individual will live is uncertain, based on one’s age, gender, health and lifestyle.  

The discount rate required by an investor is based on the perceived risks and uncertainties associated with the policy cash flows as well as returns in the marketplace for investing in other assets.

The selling price of a life policy will always be greater than the cash surrender value but less than the death benefit.

The ultimate selling price is influenced by forces in the market that determine what investors are willing to pay at any point in time.
Helping Clients

Advisors serve a special purpose in counseling and managing their clients’ financial needs and options.

An advisor should review every aspect of a client’s portfolio to determine if the assets within are performing properly.

Often overlooked are performances of life insurance policies.

A life insurance policy is an investment like equites, fixed income or real estate,  and should be reviewed from time to time to see if it still meets the needs for which it was initially purchased. There are times when an advisor or policy owner may conclude that the proceeds from the sale of a policy could be deployed in a better performing investment.

It is the advisor's role to help their clients explore all of their options, including a life settlement, when a policy is no longer needed, wanted or affordable.

If a senior determines that a life settlement is the right alternative for their particular situation, an advisor can add significant value to the transaction on behalf of their client

An advisor’s important role in a life settlement transaction is to protect their client. In addition to representing their client’s best interests, an advisor should confer with state laws to ensure all needs are being met and laws and regulations are being followed by all parties.

Benefits to you

According to a 2014 study by Penton Research, the vast majority of financial advisors are either unfamiliar with life settlements or are familiar with them but have never recommended them to clients.

Meanwhile, another 2014 survey by found that nearly 50% of advisors agreed that clients who plan to let their coverage lapse should consider selling that policy. This disconnect suggests that many advisors are simply unaware of how life settlements work and how they can benefit their clients.

In addition to the benefits to clients, advisors themselves can also benefit from working with their clients to pursue a life settlement.

The primary benefit is that life settlements present an opportunity for your clients to liquidate an asset in their portfolios and put that new cash to work for either their cash flow needs or for other investments you may wish to recommend. This provides a vehicle for financial advisors to advance client portfolios and bring more assets under management.

A recent study on life settlements reported that the average life settlement value is 20 percent of the life insurance policy face value.

Compare this value with the average cash surrender value paid out by insurance companies, which amounts to only 10 percent of a life insurance policy’s death benefit. Our research shows that Americans who are aged 65 or older leave approximately $112 billion in benefits on the table each year by lapsing or surrendering their life insurance policies. A life settlement is one option for capturing some of those benefits rather than forfeiting them back to the insurance companies.

On average, policy sellers receive anywhere from four to seven times the amount of the policy's current cash surrender value. There are four main components determining the value of a life insurance policy:

  1. The age and medical condition of the insured;
  2. Type of life insurance policy (e.g., universal life, whole life, term);
  3. Amount of the death benefit; and
  4. Amount of premiums necessary to keep the policy in force.

Naturally, the largest settlements will be offered for a higher death benefit, a lower premium and a shorter life expectancy, but in every case the amount your client will obtain will be more than the cash surrender value and less than the death benefit on the policy. 

Other benefits to you from recommending the life settlement option to appropriate clients include the following:

  • Enhanced relationships – you can make yourself a more deeply trusted advisor to your clients by conducting truly holistic financial planning that considers the potential value of all assets in portfolios, including life insurance policies;

  • Commissions – depending on your state regulations and business agreements you may be entitled to certain referral fees or commissions for completed life settlement transactions;

  • Competitive differentiation – helping your clients turn unwanted or unaffordable life insurance policies into new cash for their portfolios can be a powerful way to differentiate yourself from other advisors;

  • Obtain new clients – by recommending a creative and safe financial planning option to existing clients who are able to unlock hidden value in their life insurance policies, you may generate personal referrals to new clients; and

  • Build trust with families – serving as a trusted advisor who presents clients with a full range of supplemental retirement income options will help cement relationships with those individuals and their family members.

A life settlement is an important addition to an advisor’s toolbox of financial planning options. By selling your clients’ life insurance policies through a “secondary market” to institutional investors, they can benefit from their life insurance today and use that cash for their immediate needs. Life settlements generate liquidity and provide your clients with more cash to put to work in their portfolios.

Sales Process

A life settlement is usually accomplished through the efforts of a number of market intermediaries.

Participants in a life settlement transaction generally include:

  • The owner of a life insurance policy or the insured individual whose life is the subject of the life insurance policy;

  • A producer who may be a financial advisor or an insurance agent;

  • One or more life settlement brokers who may also be licensed as insurance agents;

  • One or more life expectancy underwriters;

  • One or more life settlement providers who typically represent the party acquiring the policy; and

  • One or more investors.

There are nine key steps associated with the life settlement process. These include the following:

 1. Need Realized. The consumer realizes a need or an advisor suggests to the consumer that he/she can sell the policy

 2. Application. The policy owner completes settlement application and provides necessary documentation.

 3. Documentation. The settlement provider acquires supporting documentation that verifies insurance and medical status. Settlement companies can work with either the advisor or directly with the policy owner.

 4. Review. The settlement provider’s insurance and medical experts review the file, determining its ultimate viability, including a review for potential fraud. Companies will competitively bid on the purchase of an existing policy based on the insured’s current age, state of health and the overall economic environment.

 5. Policy Match. The settlement provider determines suitability for sale, and matches the policy for appropriate funding. At this point, the settlement company can also determine that the settlement does not qualify, which ends the process.

 6. Offer. The settlement provider relays the offer to the client's advisor or ultimate buyer. If the offer is declined, the policyholder can seek other offers with other settlement providers.

 7. Closing Package. If the offer is accepted, a closing package is delivered to the advisor or client for review and signatures.

 8. Notification. The signed documents are returned and the insurance carrier is notified.
9. Funds Transfer. Upon written verification of change of ownership, settlement funds are transferred to the selling policy owner from the Trustee’s Escrow Account.

When the transaction is complete, the buyer – or life settlement provider – becomes the new owner of the life insurance policy, pays future premiums and collects the death benefit when the insured dies. The proceeds of the sale can be used in any manner the seller sees fit.

Are these transactions legally recognized?

Is the life settlements industry regulated?

Do I have any fiduciary obligations?

See All Frequently Asked Quesions

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The life settlement industry is expected to benefit from favorable demographic trends and technology innovations that will make it easier for consumers to sell their life insurance policies, according to featured speakers today at The Life Insurance Settlement Association (LISA)’s Eighth Annual Life Settlement Institutional Investor Conference.

The event, which is the leading professional gathering of institutional investors in the life settlement asset class, was held at The Ritz-Carlton Battery Park in New York City.

“Life settlements are a core part of financial planning strategies today because they provide tremendous value for appropriate consumers,” said Colin Devine, a veteran of the life insurance industry and consultant to both the insurance and investment management sectors. “Given our demographic trends, this business is only going to get better in the years ahead.”

In his opening keynote address, Devine observed that medical costs are a leading cause of personal bankruptcies, forcing seniors to evaluate all possible assets that may provide them with liquidity to deal with rising health care bills. “Life settlements are a very legitimate way to provide value to consumers who are struggling with older age health care costs,” said Devine.

Devine also set the stage for additional discussion throughout the day regarding significant technological innovations underway in the industry that have the potential to fundamentally change the way life settlement transactions are consummated. He pointed out that “InsurTech” is both a disruptor and an enabler in the life settlement space because it allows underwriters to arrive at a decision on the value of a policy much faster, so consumers who wish to sell their life insurance policy may soon be able to do so in a matter of weeks, not months.

This topic was further explored by S. Jay Olshansky, Ph.D., professor in the School of Public Health at the University of Illinois at Chicago, and chief scientist at Lapetus Solutions. Dr. Olshansky addressed some of the most recent innovations in predictive algorithms for estimating life expectancy and the quest for improved underwriting throughout the industry.

“The life settlement process simply takes too much time, primarily because of a very slow underwriting process historically used in the industry,” said Dr. Olshansky. “The good news is that the future of underwriting is here, or at least is very close. We’re now able to use wearable sensors to monitor vital statistics, access blood information without a needle and blood draw, evaluate bio markers and even do automated assessments of an individual’s profile photograph — these innovations allow us to obtain a much faster life expectancy and therefore a more efficient and more accurate baseline for underwriting.”

Another presentation was delivered by Anthony Tempesta, principal at Ernst & Young LLP, who focused on how “InsurTech” is changing the traditional model of life insurance. Tempesta described a wide range of disruptive technologies — including Artificial Intelligence and the use of Big Data analytics — that are increasing life insurance underwriting and policy valuation accuracy.

Other conference sessions included:

*           “Building a Portfolio: Evaluating COI Risk”: An analysis of trends and patterns that indicate the likelihood of Cost of Insurance (COI) increases by insurance carriers, and the relationship to longevity risk from an investor’s perspective. The panelists were Mark Venn, managing director and chief executive officer of ClearLife, Ltd., and Matthew Sheridan, consultant to QuantRes.

*           “The Supply Side”: A review of the current supply-side market conditions and look into the future of the secondary, tertiary and direct-to-consumer markets. The moderator was Cynthia Poveda, past chair of LISA, and panelists were Jeffrey Bollerman, managing director of Houlihan Lokey, and Jay Jackson, vice president of Abacus Life Services.

*           “Federal Tax Provision Changes”: A session discussing the effects of recent changes to the U.S. federal tax law, including an update on the details pertaining to IRS reporting requirements and other specific tax issues. The panelists were James W. Maxson, partner at Edwards Maxson Mago & Macaulay LLP, and Thomas Weinberger, partner at Schulte Roth & Zabel.

*           “Investment Performance”: A panel discussion regarding various issues impacting the establishment of a set of performance standards for life settlement investments. Moderated by Darwin M. Bayston, CFA, president and chief executive officer of LISA, the panelists included Bill Corry, owner of Corry Capitol Advisors, and Dan Young, senior managing director of Vida Capital Inc.

“We had a record attendance at this year’s Life Settlement Institutional Investor Conference, which has become the most significant annual event of its kind that brings together professionals from pension funds, hedge funds, family offices, foundations and endowments for updates on the latest developments regarding the life settlement asset class,” said Bayston.

About the Life Insurance Settlement Association
The Life Insurance Settlement Association (LISA) is the nation’s oldest and largest organization representing participants in the life settlement Industry, with a current membership of more than 90 companies doing business in all 50 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands. The mission of LISA is to promote the development, integrity and reputation of the life settlement industry, to advance the highest standards of practice and professional development for the industry, and to educate consumers and advisors about a life settlement as an alternative to lapse or surrender of a life insurance policy. For more information, visit

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