Life insurance settlement investments weren’t always seen as a smart move. Viatical settlements for the terminally ill emerged as a secondary market for life insurance during the AIDS crisis in the 1980s crisis and branched off into senior life settlements in the 1990s. In those days, the life settlement market wasn’t well regulated, and life expectancy estimates were unreliable. As a result, returns were unpredictable. Life insurers also actively fought against policyholders selling their coverage. These factors kept life settlements a niche, often misunderstood investment for years.
But things have changed, and today, the life insurance settlement industry is booming. Here are the seven biggest factors driving life settlement industry growth.
1. MORE RETIREES ARE SELLING THEIR POLICIES
The youngest baby boomers will turn 61 in 2025, while the oldest will be 79. Many retirees realize they can’t afford or no longer need a life insurance policy. Seniors are finding that premiums are too high on a fixed retirement income or that the reason they bought their policy — to financially protect their family in the event of their death, is no longer a concern. The kids are grown, the house is paid, and spouses can get Social Security or retirement income from investment accounts.
Instead of surrendering the policy for a small percentage of its worth or, worse, letting it lapse and getting nothing, boomers are turning to life settlements. The lump sum payment sellers get from a life settlement is especially attractive for retirees who need to cover medical expenses or pay for assisted living. This allows them to use the money when needed instead of waiting for a future payout.
2. INVESTORS SEE A SMART OPPORTUNITY
Another reason the life settlement market is growing is that more financial firms are adding life settlements to their portfolios, driving demand. Private equity and large investment firms see the benefits. For example, life settlements are based on life expectancy estimates, often giving investors a better sense of when they might get a life settlement return. Investing in life settlements used to be more unpredictable, but improved actuarial models, regulations and large investment firms jumping in have turned them into a reliable asset class.
3. MORE PEOPLE KNOW THIS OPTION EXISTS
As the industry has grown, life settlements have become more mainstream. Fewer people knew about them because life insurance companies had no incentive to inform policyholders about this option. However, customer education efforts from life settlement companies and brokers, financial advisors and personal finance websites have helped them understand that selling a policy is better than surrendering it.
4. NEW LAWS AND RULES MAKE IT SAFER
The industry’s rise in popularity brings more regulations and transparency, making selling a policy clearer and easier for people to navigate. Many states now require policyholders to work with licensed brokers and settlement providers to sell their policies and mandate that companies have written disclosures on how these settlements work. Some states also make policyholders wait a period, such as two years, before they can sell a newly issued policy.
These measures safeguard against fraud and unfair practices. Selling a life insurance policy has become a secure option and is no longer a last resort. Instead, it’s considered a smart financial move for people in certain circumstances and a safe strategy for investors.
5. TECHNOLOGY IS MAKING ESTIMATES MORE ACCURATE
Thanks to better data and smarter AI tools, life expectancy estimates are more accurate. Policyholders get fairer prices when they sell, and investors have better ways to assess risk and possible returns. This has made life settlements an enticing financial strategy for both parties.
6. INVESTORS WANT ALTERNATIVES TO STOCKS AND BONDS
One of the biggest draws of life insurance settlements is that they’re a non-correlated alternative investment. As a non-correlated asset, they aren’t tied to the stock market, bond market or interest rates. So, they don’t take a dive like other investments do during a recession. Instead, life settlement returns are based on actuarial calculations. This type of investment is also a compelling alternative to bonds right now because bonds have barely been keeping up with inflation.
In contrast, correlated assets like stocks, bonds and fixed income — such as treasury securities, are based on market performance and are negatively impacted by market crashes. This can make owning them worrisome during economic uncertainty.
For these reasons, many investors are looking for better ways to earn reliable income. Since life settlement payouts are tied to a policy’s fixed death benefit, the policy keeps its value regardless of the economy. This also means that life settlement fund performance can help smooth out risk in a diversified portfolio.
7. BIG INVESTORS ARE GETTING INVOLVED
Large investment firms are looking at life settlements as reliable alternative investments. Their involvement brings legitimacy and liquidity to the market.
The life settlement market wasn’t always seen as a good investment because life insurance companies used to push back on policyholders selling their policies, often arguing that it undermined the original purpose of providing for beneficiaries. Keeping policies in force through life settlements instead of letting them lapse also meant insurers made less profit. Some even added restrictions to policies to prevent sales, but this led to lawsuits and other regulatory actions.
Big investment firms are now more attracted to this strategy because stronger laws protecting policyholders, better life expectancy analytics and greater public awareness have made selling and investing in life settlements a widely accepted financial strategy.
The involvement of big investors also creates more competition, driving up payments and making offers more appealing for policy sellers. People who might have otherwise passed on life settlements are now considering them more seriously.
THE BRIGHT FUTURE OF LIFE SETTLEMENTS AS AN INVESTMENT
Stronger regulations, smarter risk analysis and more interest from large investment companies have turned life settlements into a legitimate investment opportunity. Moreover, stable returns and a lack of stock market ties make them a go-to option for investors wanting to diversify their portfolios.
As the market grows, now is the time to explore life settlement opportunities. If you want to add life settlements to your investment strategy, I2’s expert advisors can help you navigate the process. Contact us today to see how this alternative investment strategy can benefit you