Secondary Market for Life Insurance Merits Second Look From Advisors

You don’t have to be a lawyer to know that it sometimes pays to settle. 

Life insurance settlements allow clients to sell their policies in exchange for an upfront lump sum of money. The insured can solicit bids on their policies from institutional buyers, who analyze factors like age, health and policy premiums to submit competing offers. The sale provides the policy owner with a potentially significant cash advance, while the third party becomes the new owner of the policy, pays the monthly premiums, and receives the full benefit of the policy when the insured dies. 

Settlement is a potentially high-value option for people facing very difficult situations (often financial hardship or a terminal illness), yet the strategy remains relatively niche in practice, with Life Insurance Settlement Association data showing some 15,000 policies were settled between 2021 and 2025. That’s just scratching the surface, according to Bryan Nicholson, executive director of LISA, since awareness of life settlements remains relatively low.

“We could easily see double that amount of policies being settled on an annual basis in the future,” Nicholson told Advisor Upside. “This isn’t for everybody, but it should be a tool in the advisor’s toolkit.”

The Settlement Landscape 

As retirement costs rise and financial priorities evolve, more consumers are looking closely at the assets they already own, evaluating how those assets fit into their broader financial plan. When a permanent life insurance policy with cash value no longer fits the bill, consumers’ options include taking a withdrawal from the policy. This can even be done tax-free if it’s less than the amount paid into the policy, but the death benefit will probably be reduced. Clients can also typically borrow money against their policy, with non-repaid loans typically being deducted from their death benefit. And, of course, they can surrender the policy or even let it lapse outright.

For many permanent life insurance policyholders, the secondary market can open the door to better outcomes. Compared with other options, Nicholson said, settlement is particularly attractive in 2026: 

• The average cash surrender value offered by insurers, or the money the policyholder receives after cancelling the plan, declined 27% year-over-year, falling from $33,493 in 2024 to just $24,360 in 2025. 
• Participants in the settlement market, conversely, received nearly nine times the cash surrender value ($212,066 on average), up from just under seven times in 2024. 
• That represents about $555 million more being returned to policyholders than they would have received by surrendering. 

Key Considerations. Settlement is usually available for policyholders aged 65 or older who have unwanted coverage, unaffordable premiums, changing estate needs or medical expenses. Unlike standard death benefits, life settlement payouts are generally subject to income taxes. Likewise, beneficiaries will permanently lose the right to the policy’s death benefit, and though the payout is higher than the surrender value, it can still be considerably lower than the total death benefit.

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