The ‘Peak 65’ zone that began in 2024 and runs through 2027 will see more than 4 million Americans turn 65 – over 11,000 every day.
Some of those people will need long-term care, which, according to the Milliman Long Term Care Index, will cost the average American senior $135,000 from age 65 through the remainder of their lives. In some states, such as New York and California, this figure increases to $266,000.
And some of those will have a life insurance policy which qualifies for a life settlement, for which the average payout, according to new data from Washington, D.C.-based industry group the Life Insurance Settlement Association (LISA), was $212,066, which would cover the average cost in most states.
Bryan Nicholson, Executive Director at LISA, says that this illustrates what LISA says is one of the main benefits of its industry to consumers.
“There are a range of reasons why someone may choose to complete a life settlement transaction, and the reality of later-life care costs is increasingly one of them,” he said.
“Many policyholders reach a point where the original need for the coverage has changed, or the policy itself no longer aligns with their financial priorities. Selling a policy they no longer want or need can create meaningful liquidity without forcing someone to draw down other assets to fund those costs.”
LISA has been carrying out its market member survey annually for the past five years; its licensed life settlement provider members supply anonymised data to the organisation which it then aggregates for publication.
The data this year shows growth in the number of transactions (2955 vs 2699 in 2024), the underlying policy value represented in these transactions ($3.7bn vs $3.4bn), the aggregate net amount paid to consumers ($626,654,490 vs $601,356,870) and the multiplier of the average settlement amount vs the cash surrender value of a policy (8.71 vs 6.65).
The latter figure is one that the life settlement market uses frequently to emphasise the difference that selling a policy on the secondary market can have to a policyholder.
Industry group the American Council of Life Insurers (ACLI) publishes its annual Life Insurers Fact Book in or around November each year, which contains data through the end of the prior year.
In 2024, the most recent year for which data is available, the combined termination rate of individual life insurance policies issued by US carriers when measured by face value was 5.8%, the highest in at least ten years. But when measured by the number of policies, that figure rose to 7.9%.
Not every policy qualifies for a life settlement but given that 134 million individual policies were in force at the end of 2023, with a face value of approximately $14trn, the amount of money being left on the table by American policyholders is undoubtedly enormous.
Add to that the fact that for those who surrender their policy back to the carrier for the cash surrender value, and the frustrations in the life settlement market that more consumers are not aware of the life settlement option become amplified.
“An 8.71 multiplier over the cash surrender value illustrates just how much more a policyholder may be able to recover through the secondary market rather than surrendering a policy back to the insurance company,” said Rob Haynie, Managing Director at Life Insurance Settlements and current Chair of LISA.
Life settlement market participants say that the 7.9% lapse rate reflects as much a misunderstanding of what a life insurance policy is as well as not knowing it can be sold. Policyholders view their premiums as an expense so when those premiums rise, as they often do with Universal Life policies (the main type of policy seen in the life settlement market), the American senior sees a bill they can no longer justify as opposed to an asset that might have a resale value.
That means that it’s treated more like a cancelled subscription rather than what it actually is, which is personal property, which makes the awareness challenge a double-edged sword for the life settlement industry.
“Our awareness efforts are centred around both highlighting that selling a life insurance policy is possible and helping consumers understand how the process works,” said Nicholson.
“Like many significant financial transactions, life settlements involve consumer protections and disclosures. As awareness grows, helping consumers and advisors better understand the process will continue to be an important long-term focus for the industry.”
As the ‘Peak 65’ surge continues through 2027, the demand for liquidity to fund everything from long-term care to a deposit for a house for a senior’s children, for college tuition to just taking a few (very nice) vacations has never been higher.
The market will find out the lapse rate from 2025 towards the end of the year when the ACLI publishes the next edition of its Life Insurers Fact Book. It is very unlikely to be zero, which, for Haynie, is exactly the reason why the life settlement market needs to continue its educational efforts.
“The lapse rate will never be zero, and not all policies qualify for a life settlement, but the level it remains at does suggest a significant awareness gap,” he said.
“The industry has made substantial progress in recent years, and awareness continues to improve among both consumers and financial advisors. Over the past five years, LISA members have returned roughly $3bn more to consumers than those same policyholders would have received through surrender. As more people better understand that a life insurance policy may have market value, more policyholders will be in a position to make fully informed decisions that can have greater financial benefit for themselves and their families.”
