Advisors may miss big payouts by skipping life settlements

A 78-year-old couple preparing to surrender a $2 million guaranteed universal life policy for the carrier’s cash value of about $74,000 instead received a $612,000 net offer from institutional buyers after their broker solicited bids from the secondary market.

The policy had been placed in an irrevocable life insurance trust in 2009 to cover estate taxes when the federal exemption was $3.5 million per person. Last July’s One Big Beautiful Bill Act raised the exemption to $15 million per person, removing the estate-tax purpose for the trust-owned policy while premiums of about $38,000 a year continued to be paid from the couple’s taxable accounts.

Before surrender paperwork was signed, the broker sent the policy to 21 institutional buyers. Nine firms returned offers; the highest bid was roughly eight times the carrier’s surrender value, net to the trust after broker commissions.

Industry data point to a large difference between potential and realized secondary-market activity. A 2025 study by Conning estimated annual gross market potential for life settlements at $224 billion. The Life Insurance Settlement Association reported about $3.4 billion in face value of policies settled in 2024.

State regulation and market participation have changed in recent years. Forty-three states now regulate life settlements. Six states-Washington, Wisconsin, Oregon, Maine, Kentucky and New Hampshire-require carriers to notify policyowners of settlement options before a policy lapses. Major institutional investors including Apollo, Blackstone, Berkshire and TPG are active buyers in the market.

Life settlements are most often relevant for policyowners aged 70 or older who hold permanent life insurance with face amounts typically above $100,000, particularly if health has declined since issue or the original planning purpose no longer applies. Exploring a settlement generally requires no upfront cost to the policyowner; brokers take fees from the proceeds and most states cap those commissions. The trade-off is that heirs would no longer receive the death benefit.

Historically, broker-dealers discouraged representatives from discussing life settlements. That restraint eased in the 2020s, but many advisors trained earlier did not add the option to routine policy reviews. Carriers do not typically highlight secondary-market options because lapse rates contribute to their income.

Cole Hallman, founder of Citizens Life Group and an advisor at Asset Life Settlements, recommended a simple step for advisors: “Before any surrender paperwork goes out, before we cancel, let’s see if it qualifies for a settlement.” He added that if bids arrive the client gets a market comparison; if no bids arrive, the policy can be surrendered.

Fiduciary standards referenced by financial planners and registered investment advisers raise a practical question about whether life settlements should be presented as an option during reviews of insurance held by clients. The decision is left to advisors and their clients after a market check is completed.