The secondary life insurance market in the UK has been essentially doomed to run-off since 2000 when British Chancellor of the Exchequer Gordon Brown abolished the mortgage interest relief at source (MIRAS) program. This decision, that built on the tax relief cut under the Conservative administration in 1993, effectively sounded the death-knell for the traded mortgage endowments market, given that no new issuance was occurring in any significant volume.
Fast forward to 2026, and this market – officially called the traded endowment policy (TEP) market – has now largely run-off.
But from the ashes of the TEP market, a new secondary market for life insurance policies in the UK could be about to emerge.
That it hasn’t yet is not due to any regulatory/legal issues. The Policies of Assurance Act 1867 gives UK policyholders the statutory property rights to their policies and therefore the ability to assign them to a third party and indeed, the UK taxman publishes guidance on what the taxes are if there was such a sale or assignment of a UK policy, or part of a policy, for value.
So, why hasn’t it, then? After all, the general consensus is that the first-ever ‘life settlement’ transaction occurred in the UK in 1844 when Foster & Cranfield held an auction of life policies, so the country predates the United States in the creation of a secondary life insurance market.
“A big part of the reason why the UK doesn’t have a market similar to the US is because the vast majority of life insurance policies in Britain are term life, as opposed to permanent life insurance in the US market,” said Devam Sukhija, CEO and Founder of Pembridge Life.
“The US model needs the runway that permanent life insurance provides. That model won’t work in the UK because the amount of permanent life insurance isn’t high enough to make a market.”
So, a new approach is needed if there is any chance of a market emerging in the UK.
One way is to take a systematic hedge fund-type approach, where traditional medical underwriting that is commonplace in the US market is eschewed in favour of a model that purchases enough policies at the right price so that the general population mortality curve provides enough death benefit to deliver a profit over the costs associated with policies that eventually lapse.
“There are two main differences with this approach compared to the US market. First is that the medical underwriting function in the US enables investors to be more precise about what they are paying for because they can model any health impairments, which also means they can pay more for a policy,” said Sukhija.
“But when you buy term life insurance without doing any medical underwriting, you need to assume everyone is healthy, so you pay less. Second, because most term insurance policy premiums are fixed or adjusted for inflation through a fixed RPI-linked agreed formula, there is no cost of insurance increase risk like there is in the US market, so your maximum loss is known at the time of purchase. You have to get the model right based on standard mortality tables but there are more knowns than unknowns in this model.”
Whilst the model might be different, the challenge is still getting it right, just as US life settlement investors must do if they are to profit from their investment. And another similarity between the UK and US markets lies in the consumer awareness challenge, which is arguably more difficult in the UK due to its less developed nature.
“I think this is the more difficult of the two challenges here because no-one apart from us is doing it, although we do expect more people to enter the space over the next few years as we gain traction,” said Sukhija.
“But the intermediary market is the obvious place to start. Whether an intermediary is part of a nationwide organisation or a local independent financial advisor, they have to follow the FCA’s best interest rule, but they can only follow it if they know that an option to surrender a life insurance policy for cash exists and they can only know if someone makes them aware of the option. This effort is more than educating – it’s much more embryonic than that and therefore takes much longer.”
So, ‘pounding the pavement’, so to speak, in order to raise awareness would indeed seem to be the order of the day here.
Whether this works or not will not be known for a while. And the question of whether the capital markets can get involved in any meaningful way – in the sense of the creation of pooled investment vehicles to allocate capital to the market, or to securitise a pool of policies for credit investors – is a stage two question. But in the short term, for Sukhija, the evangelism angle – which the US market leans on heavily – is the way to go.
“I find this situation quite not right that there is a huge number of people that pay into a life insurance policy, and if or when their circumstances change, such as paying off a mortgage, children growing up and moving out, or even a divorce, for example, that the insurer gives them nothing at all. The value when they lapse their policy goes to the insurer straight away. We want to share that with the customer,” said Sukhija.
“While it might look different from the US model, there’s no reason that the UK can’t have a secondary market for life insurance.”
