Understanding Key Drivers of U.S. Life Settlement Growth
The U.S. life settlement market has seen impressive growth recently. After overcoming challenges post-Great Recession, the market has stabilized. According to Conning’s 2021 report, the market has been on a steady upward trajectory for the last five years. The number of new settlements continues to rise. This trend indicates positive growth for in-force life settlements, according to Scott Hawkins from Conning. Three primary forces drive this growth: demographic trends, regulatory environment, and streamlined transactional workflows.
Demographic trends present a significant growth driver. The U.S. population is aging rapidly. By 2060, Americans aged 65 and older will surpass 98 million. This group’s share of the total population will rise from 15 percent to nearly 24 percent. This aging population creates a larger market for life settlements. Simultaneously, the retirement funding shortfall in the U.S. continues to worsen. The National Institute on Retirement Security reports inadequate retirement savings among working-age Americans. Four out of five working Americans have less than one year’s income saved in retirement accounts. Retirees seek new liquidity sources, with life insurance policies emerging as a solution.
Life insurance is a widespread asset in the U.S. Around 60 percent of Americans have some form of life insurance. More seniors and their financial advisors are beginning to understand that life insurance policies can be sold. This awareness converts life insurance into a liquid asset, available to meet immediate financial needs.
The regulatory environment also plays a crucial role in life settlement growth. Forty-two states and Puerto Rico regulate life settlements. This regulation offers protection to approximately 90 percent of the U.S. population under comprehensive life settlement laws. These laws ensure a waiting period before selling a life insurance policy, typically between two to five years. In special cases, such as terminal illness, the policy can be sold sooner.
Ethical standards have been established to regulate life settlement transactions. Licensed professionals involved in these transactions must serve the best interests of consumers. Life settlement brokers act as fiduciaries, while settlement providers adhere to professional conduct standards. The Life Insurance Settlement Association (LISA) maintains a code of ethics for its members, promoting integrity and professional excellence within the industry.
The 2017 tax reform law has also positively influenced the regulatory environment. IRS Revenue Ruling 2020-05 offers favorable tax treatment for life settlements. Policyholders who sell their policies are not required to reduce their tax basis by the cumulative cost of insurance charges. This treatment aligns with the tax rules for policyholders surrendering their policies to insurance companies. Additionally, the law increased the estate tax exemption, making some policies redundant and potential candidates for life settlements.
Transactional workflows have become more efficient. The life settlement process is now quicker and simpler for consumers. Improvements in the application process mean less paperwork and faster settlement quotes. Accurate life expectancy modeling and a competitive market contribute to this efficiency. This leads to quicker bid generation, benefiting both consumers and buyers.
Emerging technologies also streamline the transactional workflow. New software tools facilitate life settlement applications, due diligence, underwriting research, and document execution. These tools also assist in processing cash payments in exchange for policy beneficiary reassignments.
Life settlements have emerged as a viable alternative for seniors considering policy lapse or surrender. Demographic trends suggest rising market demand in the future. The industry is safe, ethical, and well-regulated. Transactions are easier and faster, supporting steady growth in the U.S. life settlement market in the coming decade.
We understand the factors driving life settlement growth. We offer tailored solutions to help you explore and benefit from life settlement opportunities. Our dedicated team provides detailed information and guidance to help you make informed decisions about your life insurance policies. We are here to empower people to access the full value of their life insurance and achieve their financial goals.
