In the life settlement industry, we’ve long prided ourselves on the precision of our underwriting and mortality assumptions. But as the market matures, and as we underwrite increasingly affluent insureds, there’s a crucial longevity dynamic that deserves deeper reflection: the wealth effect.
Wealth has long been associated with longer life expectancy. A growing body of research, from Chetty et al. in JAMA (2016) to more recent insights from Nature Medicine and OECD, consistently finds that longevity increases across wealth tiers. Moderate-wealth individuals can expect to live 3–6 years longer than low-income peers. High net worth (HNW) individuals gain 6–9 years, and ultra-high net worth (UHNW) individuals a further 2–3 years beyond that. Access to world-class healthcare, early diagnostics, concierge medicine, and global specialist networks are just a few of the reasons why.
Despite these findings, the wealth effect remains largely unaccounted for in traditional life settlement mortality models. Current market practice tends to treat all insureds alike in regard to mortality assumptions, regardless of whether they hold a $250,000 policy or a $10 million one. Yet actual-to-expected (A/E) mortality data tells a different story. A crude increase to the policy IRR is usually priced in to allow for greater illiquidity and longevity risk premia. However, on the shorter life expectancy cases, most of the value is around the present value, and the effect of this increased discounting is not sufficient on its own.
Analysis of Society of Actuaries (SOA) data published in 2024 for individual life experience between 2012 and 2019 reveals a clear trend: A/E ratios fall with increasing face amount. A male age 80 with less than $100k in coverage had an expected LE of 139 months, while the same insured with $10m in coverage had an expected LE of 167 months, a 20% increase. That’s nearly the same gap between non-smokers and smokers (23%), and we don’t question the need for separate mortality tables in that context.
This isn’t just an actuarial technicality. In an industry where a single $10 million face policy may represent the equivalent of 20 smaller $500k policies, misjudging longevity on the wealthier insureds can materially distort both fund performance and pricing accuracy. And with the average new life settlement face amount hovering between $1.1m and $1.5m, the issue isn’t isolated, it’s central.
So, what can we do?
Start with conversation. Fund managers should begin by asking their underwriters whether and how wealth is factored into the LE estimates. Some of the health advantages wealth confers may already appear in the medical records reviewed, but for those with impairments, the wealthy are far more likely to afford treatments and access services that improve survival beyond what’s reflected in legacy data or studies based on broader, less affluent populations.
Next, consider revisiting mortality assumptions. Some industry players have begun experimenting with shifting from the RR100 VBT tables to more preferred RR50 for HNW/UHNW insureds, particularly when mortality multiples are high. The logic is sound: if wealth confers health, and health drives longevity, then wealth should inform mortality table selection, just as smoking status and gender do.
To be clear, this is not a call for drastic change or for throwing out established methods. Rather, it’s an invitation to reflect, review, and recalibrate where needed, starting with a better alignment between data, underwriting assumptions, and the realities of our increasingly healthy and wealthy insured population.
After all, when it comes to the health of a portfolio, and the fairness of investor returns, every additional month of life expectancy matters.
Liam Bodemeaid is an Actuarial Consultant at Actuarial Risk Management
Any views expressed in this article are those of the author(s) and may not necessarily represent those of Life Risk News or its publisher, the European Life Settlement Association
