A life insurance policy is often viewed as a means to support others. However, many older Americans are now discovering that it can become a valuable financial asset for themselves. Between 2021 and 2024, the average life settlement payout was $209,300. That’s real money, unlocked by selling a policyyou no longer want or can’t afford.
For some, it covers years of retirement. For others, it assists with long-term care, debt relief or financial support for loved ones. Yet most policyholders never realize they’re holding a life insurance policy with hidden value.
In this blog, we’ll look at why most people never tap into this value, what drives the average life settlement payout, and how the process works step by step. You’ll also see real examples of how much others received—and how to find out what your policy might be worth.
WHY SO MANY PEOPLE MISS OUT ON THIS HIDDEN VALUE
Every year, millions of policies are allowed to lapse or are surrendered for far less than their full value. That decision often leaves thousands (or hundreds of thousands) on the table.
Why does it happen? Some people assume they’re ineligible to sell their life insurance policies unless they’re terminally ill. Others believe their policy is too small or that selling is too risky. None of those assumptions is true.
Life settlements are regulated financial transactions, not quick-cash schemes. They’ve become a recognized option in retirement planning. If you’re holding onto a policy that no longer serves your needs, selling it could offer real financial relief or freedom.
WHAT DRIVES THAT $200K AVERAGE
How much a life settlement is worth depends on several details, starting with your age and health. Policies become more valuable when the policyholder’s health changes, especially if it shortens their life expectancy. That’s one reason why older adults typically receive higher offers.
The type of policy also matters. Universal life, whole life and convertible term policies are more attractive to buyers. Additionally, policies with a higher face value and lower premiums are more valuable on the market.
Recent increases in the average life settlement return are tied to demand. Investors are seeking stable, non-market-correlated assets. At the same time, more seniors are aging into life settlement eligibility, and regulations have improved transparency for both sellers and brokers. The result? Offers are higher, and competition is stronger than ever.
HOW LIFE SETTLEMENTS WORK
Selling your life insurance policy begins with a simple evaluation. A broker will review your policy, age and health history to determine if you qualify for a competitive bid. Once the policy is submitted, multiple licensed buyers can compete to make you an offer.
The typical seller receives a lump sum that’s four to seven times greater than the policy’s cash surrender value. The buyer then takes over the premiums and collects the death benefit in the future. You will no longer have any financial responsibility for the policy once the sale is closed.
Here’s a quick breakdown of how the process works:
- 1. You submit your policy for a confidential, no-obligation review.
- 2. A licensed broker presents your case to multiple buyers.
- 3. Offers come in, and you decide whether to accept one.
- 4. If you move forward, the buyer prepares a contract for the sale of the policy, and the broker will assist you through this process.
The entire process usually takes around 90 days. Most importantly, you stay in control at every step, and you don’t pay anything up front.
REAL-WORLD SCENARIOS — WHAT A SETTLEMENT CAN DO
Scenario 1: Imagine a 74-year-old retiree with a $500,000 universal life policy. He no longer needs the coverage, and premium payments are eating into his fixed income. If he were to sell the policy through a life settlement, he might receive a lump sum of approximately $200,000, which would be enough to cover long-term care costs or ease the financial burden on his children.
Scenario 2: Now, imagine a couple holding a joint survivorship policy, initially purchased for estate planning purposes. Changes in estate tax laws mean the policy no longer serves its original purpose. Rather than letting it lapse, they could explore a life settlement that provides both a cash payout and a reduced death benefit, freeing up funds for travel or early retirement.
Scenario 3: Or take the case of an 81-year-old widower with a small universal life policy. Premiums have become harder to manage, and the cash surrender value is minimal. Instead of walking away with nothing, he could sell the policy and walk away with $15,000 to $25,000 in cash, enough to build an emergency fund or pay off lingering medical bills.
Each of these examples shows how a life settlement can provide meaningful options. For the right candidate, it can be a smart way to unlock value from an asset that is no longer needed.
HOW TO FIND OUT WHAT YOUR POLICY IS WORTH
To qualify for a life settlement, most policyholders must meet the following conditions:
- Age 65 or older (or younger with significant health changes)
- Policy has a face value of at least $100,000
- Policy is a permanent type or a convertible term plan
If that sounds like your situation, or that someone you’re helping, you can start by using a life settlement calculator or calling a licensed broker for a review.
Be sure you’re working with a broker, not a direct buyer. Brokers like Life Settlement Advisors advocate on your behalf, presenting your policy to multiple buyers to help you secure the best offer. Direct buyers make a single offer, with no competition.
Tax treatment can vary based on the settlement amount and your cost basis. Any portion up to the total premiums you’ve paid is generally tax-free. Amounts above that may be subject to capital gains tax. Always consult with a tax advisor before signing.
DON’T LET SIGNIFICANT HIDDEN VALUE GO UNCLAIMED
The average life settlement payout is now more than $200,000. If your policy no longer fits your financial goals or the premiums are becoming a burden, you don’t have to let it expire without benefit. You may be holding a life insurance policy with hidden value, and unlocking it could provide you with more freedom in how you spend your time, energy or resources.
If you’re wondering how much you could get for your life insurance policy, contact Life Settlement Advisors to request a no-cost estimate today.
