Life insurance wasn’t meant to be a liquid asset. But for many retirees, that’s precisely what it’s becoming. As more adults enter retirement, the life settlement market, where policyholders sell their life insurance for cash, is gaining momentum.
Seniors are increasingly rethinking what to do with policies they no longer want or can’t afford. At the same time, investors are drawn to the steady, non-market- based returns life settlements can offer.
Let’s look deeper at the forces driving life settlement market growth and why investors are paying closer attention.
THE AGING POPULATION: A TIDAL WAVE OF SUPPLY
America is getting older fast. More than one in five U.S. residents will be 65 or older by 2040, according to the Administration for Community Living. That’s more than 78 million people entering or living through retirement at the same time.
Many have life insurance policies they bought decades ago, when financial priorities looked very different. What once served as a safety net for spouses or children may now be an expensive luxury. This is causing the demographic trends in life insurance to change.
It doesn’t help that the senior life insurance market contains whole and universal life insurance policies whose premiums often rise as policyholders age. For retirees on fixed incomes, those costs can feel harder to justify.
At the same time, retirement is lasting longer than ever. Seniors are living into their 80s and 90s, making it necessary to stretch resources further. For some, a life insurance policy starts to become less of a legacy tool and more of a liquidity opportunity.
That’s where life settlements come in. Instead of canceling a policy or letting it lapse, seniors can sell it for a cash payout. They can put that money to work now, while it still makes a difference in their lives.
UNDERFUNDED RETIREMENT AND THE SEARCH FOR LIQUIDITY
Many retirees aren’t entering their golden years with the financial security they expected. According to the Federal Reserve, the median retirement savings for U.S. households aged 65 to 74 is $200,000. For those over 75, the balance drops to $130,000.
That may seem reasonable, but stretched over two or three decades, it often isn’t enough. Factor in rising healthcare costs, inflation and longer life expectancies, and the financial pressure only increases.
To close the gap, seniors are exploring new ways to generate income. Life insurance settlements are increasingly becoming an out-of-the-box solution, especially against other alternatives like reentering the workforce.
Life Insurance as a Non-Essential Asset
When a policy is no longer needed for income protection or legacy planning, it becomes a non-essential asset. But that doesn’t mean it lacks value. A life settlement can provide four to five times more than the policy’s surrender value.
That kind of payout can help cover major expenses, from medical care to long- term housing, without liquidating investment accounts or relying on family. For retirees facing a shortfall, it’s a practical solution that can offer both financial relief and greater peace of mind.
THE OPPORTUNITY OF HIGH POLICY LAPSE AND SURRENDER RATES
Seniors forfeit billions of dollars in life insurance value each year by letting policies lapse or surrendering them for far less than they’re worth. From 2015 to 2021 alone, 1.3 million universal life insurance policies lapsed, according to the National Association of Insurance Commissioners (NAIC).
This often happens because policyholders don’t realize they have a third option beyond continuing to pay premiums or surrendering the policy. Life settlements offer sellers and investors a way to recover meaningful value from the senior life insurance market, since policies would otherwise vanish. For investors, life settlements often have favorable pricing relative to their actuarial value.
WALL STREET IS PAYING ATTENTION TO LIFE SETTLEMENTS
Life settlements are no longer flying under the radar. In recent years, institutional investors (hedge funds, pension funds, private equity firms) have poured billions into the space.
What’s attracting that capital? Predictable returns, improved risk modeling and low correlation to traditional markets. Since life settlement returns are based on life expectancy rather than stock performance or interest rates, they offer a level of stability that’s hard to find elsewhere.
Advanced underwriting tools and more accurate life expectancy data have also made outcomes more reliable. What used to be a speculative investment is now a well-modeled, actuarially driven asset class.
Institutional involvement is driving more transparent pricing, better underwriting standards and more efficient transactions. This makes the market easier to access and more predictable for investors.
FUTURE OUTLOOK: MORE GROWTH AHEAD
As more baby boomers retire, the number of people considering selling a life insurance policy keeps growing. At the same time, financial advisors are getting more familiar with how life settlements work. They’re also more likely to bring them up as part of a retirement strategy.
Moreover, technology is pushing the industry forward. Smarter AI tools, better data and faster platforms make it easier to connect sellers with buyers and price policies more accurately.
All of this points to a positive life settlement industry outlook. With rising awareness, smoother processes and steady investor demand, life settlements are on track for even more momentum ahead.
LIFE SETTLEMENTS: AN EMERGING ASSET CLASS WITH STAYING POWER
Life settlement market growth isn’t just because of one factor. Instead, there are several market drivers for life insurance settlements. For example, an aging population and life settlements go hand in hand as more people are looking to sell their policies.
Many retirees also need extra cash to cover longer, more expensive retirements. At the same time, high lapse rates are pushing valuable policies into the secondary market. And institutional investors are stepping in with the capital, tech and structure to help the industry scale.
The result is a market that’s maturing fast. For investors, life settlements offer a steady, data-driven strategy in economic uncertainty. Speaking with a life settlement advisor can help you see how life settlements fit into your investment portfolio. Talk with i2 Advisors today about your next investment opportunity.