A life settlement is the sale of a life insurance policy to a third party for a market value return. A 2010 U.S. Government Accountability Office (GAO) report compiled data from thousands of transactions that showed that seniors who sold their policies in life settlements received, on average, about ten times the amount they would have received if they surrendered the policy back to the issuing insurance company. Citing that GAO report, a 2017 National Association of Insurance Commissioners Subgroup on Long Term Care Innovation identified life settlements as a “Private Market Option for Financing Long-Term Care Services.”
Seniors can use life settlement proceeds rolled over for critical expenses such as maintaining their standard of living in retirement and paying for senior health care costs, including long-term care. A life settlement is a valuable alternative for seniors to make use of an asset that they otherwise would let lapse or sell for less than full market value. In fact, over the next decade, seniors are projected to lapse or surrender policies with face values of more than $2 trillion that could be readily sold in life settlements.
Life settlements have long been considered a property right of U.S. policyowners. Over 100 years ago, the U.S. Supreme Court held in Grigsby v. Russell that a life insurance policy has “the ordinary characteristics of property,” including the ability to sell that policy to an unrelated third party, thus ensuring that life insurance policies can be sold for fair market value.
Life settlement transactions are highly regulated and subject to substantial consumer protections. Currently, 43 states have laws specifically protecting seniors who sell their policies. These laws cover more than 90 percent of the U.S. population and have been proven to be effective. According to the National Association of Insurance Regulators, only two consumer complaints regarding life settlements have been reported nationally throughout the U.S. in the past four years.