Although selling a life insurance policy for cash started over 100 years ago, the life settlement market became very active with the noble purpose of helping AIDS patients cash out of their policies to pay for health care costs. As this new market grew in size it went through its own growing pains as it developed into today’s well-regulated industry.

In the past, returning the policies for a lesser cash value or simply lapsing the policy were the only two options at disposal for policy owners who needed to shed or could no longer afford their policies. The need to purchase a more affordable premium, pay medical bills, or reduce debt is often the solid reasons for selling life insurance policies.

The life settlement market has become more complex and polished over the last several years. The buyers use state-of-the-art financial models to determine which policies will give them the greatest return on their investment.

Underwriting guidelines and mortality statistics were implemented as institutional investors joined the secondary market. As the market value increased, underwriting and transaction models have become more sophisticated – solidifying life settlements as a proven financial market option.

Life Settlement Statistics:

  1. Studies state that 85% of term policies and 88% of universal life policies are bound to lapse, terminate, or surrendered before the policy pays a death benefit.
  2. Research from London Business School shows policy owners are entitled to an average of over four times the policy’s cash surrender value from a life settlement payment; 
  3. A study by investment management firm Conning in 2018 projects that each year, life insurance amounting to $200 billion in face value will be surrendered or lapsed through 2027— all of which could be eligible for a life settlement sell which would greatly benefit senior citizens.
  4. Studies show that the U.S. retirement age population will grow by 38% between 2015 and 2025, and many of them won’t have sufficient retirement savings to replace their working income.

Factors Increasing Stress

  • The recent Covid-19 pandemic has hit the U.S. hard. Millions are unemployed – many are senior citizens.  Covid-19 increased the liquidation of the non-liquid assets to maintain survival costs.
  • The Employee Benefit Research Institute projects that 46% of seniors spend more money on their living costs in their first two years of retirement, and 33% continue to do so for six years into retirement. A desire to improve the retirement lifestyle with an increasing life expectancy in senior people are solid factors of the life settlement industry growth.
  • Rising Health care costs make senior citizens dissolve their premium policies in search of cash for expenses.

The Bottomline

The U.S. life settlement industry is expected to skyrocket to a $160 billion industry in the next two decades. Senior citizens who are still carrying debt from credit cards, mortgages, or other loans know they do not want debt weighing down their retirement years.  A life settlement might be the one option to help combat debt and unforeseen crises.

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