The life settlement industry has been around for more than 100 years and has developed through several milestone and regulatory enactments. It has evolved rapidly from being a byproduct of the life insurance sector to becoming a separate industry increasingly gaining popularity amongst policy owners and investors.

Even with the gradual rise of life settlement as an alternative option for insureds, many are fundamentally unaware about the concept of life settlements itself. This article shall explain how life settlements came into existence, an insight into its untapped market potential and the present industry regulations.

The Origination

The first well-known legal case regarding life settlement was the benchmark 1911 US Supreme Court case of Grigsby VS Russell, 222, U.S.149. Justice Oliver Holmes has stated that a life insurance policy shares same characteristics as of a private property. If the policy is not treated as such, it can be devaluated for the policyholders.


Justice Oliver Wendell Homes

Hence, a life insurance policy was given the status of a transferable property. This meant that an insured was “legally” allowed to transfer their respective policy’s ownership rights to a non-related third party, similar to how one may buy or sell a real estate, stocks, or bonds.

Core Concept

It is important to understand that prior to the establishment of life settlements, an insurance policy holder that was unable to pay the premium payment, could have faced a policy termination issued by the insurance provider. Such policy is considered lapsed and the intended insurance coverage would have been ceased, and one will have no claim power over the death benefit.

Nonetheless, the core concept of life settlements and the industry’s secondary market was established. Evidently, not all contracts may be suitable for the secondary market. However, insureds were given an option to sell their unneeded or unaffordable life insurance policies to an interested third-party investor for immediate cash payment – much greater than the issuer’s offered cash surrender value

Market Potential

Life settlements presents a viable alternative to owners from lapsing or surrendering their policy. According to a joint study by the Society of Actuaries and Life Insurance and Market Research Association (LIMRA), every year US policy owners of 65 years young and more (average age of insureds in the life settlement industry), lapse their policies with a total of $112 billion in face values. Study shows that 90% of them were unaware of life settlement as an option and if being properly informed regarding such alternative, they would have considered selling their insurance policies.

Furthermore, a 2019 American Council of Life Insurers Fact Book report stated, that there were a total of $703 billion (in face value) lapsed policies and only $133 billion paid as cash surrender value in 2018.

These statistics present a huge loss for all those policyholders who were unaware of a potential value of their assets. For the life settlement industry, these numbers give insight to the untapped opportunity the market has to offer to investors.

To bridge the gap, an adequate amount of education and collaboration from all parties are required in order to preserve the long-term value of these policies.


Since the mid-90s, the life settlement market has become a well-established and regulated industry for insureds and investors. Especially, in the last ten years the secondary life settlement market has been streamlined so much to the point where presently, 43 U.S states have thorough guidelines in place to protect the rights of policy sellers and investors.

Moreover,  according to Life Insurance Settlement Association (LISA),  to prevent concealment or misinformation regarding life settlements there are seven U.S states – Main, New Hampshire, Kentucky, Georgia, Wisconsin, Oregon and Washington- where insurance carriers are legally obligated to provide life settlement disclosures to insureds who are considering to give up their policies.

Several states have similar legal disclosures put in place. Nonetheless, these regulations are a much-needed step towards increasing awareness around life settlements and penalizing the spread of misinformation and creating a healthy environment for future growth of the life settlement market.

Overall, with an increased regulation and by providing comprehensive information to sellers and investors, the industry is on the right path.  As a result, the number of life settlement transactions is growing exponentially each year. With some experts such as the renowned firm Conning and Co stating that by 2028 the life settlement market will have a gross market potential of approximately, $212 billion in face value.

To learn more about adding this product to your or your client’s portfolio, contact one of our fractional life settlement experts at or 213-533-9002 

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