Beginning a number of years in the past, the Life Insurance coverage Settlements Affiliation started gathering knowledge on the life insurance coverage settlements market, which provides the policyholders an opportunity to promote in-force insurance policies to buyers.

LISA members characterize 95% of the market. They submit knowledge relating to the variety of transactions they accomplished in 2022, the common face quantity of the insurance policies bought, and different transaction particulars.

Right here’s a synopsis:

• 3,100 life settlement transactions had been accomplished.
• $770 million was paid to customers for the sale of the undesirable life insurance coverage insurance policies
• $610 million was the distinction between the overall quantity paid to the customers and the quantity the customers would have obtained if their life insurance coverage insurance policies had been lapsed or surrendered
• $250,500 was the common quantity a policyholder concerned in a life settlement obtained after finishing the transaction.

Think about this: 9.28 million insurance policies had been lapsed or surrendered in 2021, and people insurance policies had $624.2 billion in whole face worth.

Based on LISA, insurance policies with a complete of greater than $100 billion of face worth are lapsed by seniors over age 65 annually.

This determine doesn’t embody the coverage surrenders. Simply the lapses.

The Causes

This begs the query: Why?

The brief reply is that shoppers discover the insurance policies undesirable, unneeded or unaffordable, and really feel as in the event that they haven’t any different possibility however to lapse or give up.

They’re unaware that alternate options could also be obtainable, and that one different is the sale of the coverage.

Purchasers could not seek the advice of their advisors earlier than lapsing or surrendering.

Or, advisors may not absolutely perceive life insurance coverage settlements. They could have misconceptions about how the market operates.

Take into consideration the hole between the numbers: 9.28 million insurance policies lapsed or surrendered, and solely 3,100 offered.

Purchasers are lacking out on a whole lot of worth for his or her insurance policies.

The Limits

To be clear, not all 9.28 million insurance policies could possibly be offered.

A few of these insurance policies, akin to many ultimate expense insurance policies, had been too small to be offered, or the shoppers too had been younger and wholesome. Money worth might need been very excessive relative to the face worth, or the quantity of coverage loans taken might need been excessive.

A time period coverage that’s coming as much as the top of the time period or finish of the conversion interval has no inherent money worth.

However many greater than 3,100 in-force insurance policies ought to have been offered.

Typically, the explanation {that a} shopper bought their life insurance coverage coverage 10, 20 or 30 years in the past is not a priority, rendering the coverage undesirable or unneeded.

If a coverage did have a money worth final yr, promoting the coverage generated 5 occasions extra cash than merely taking the money give up worth.

If a shopper just isn’t going to maintain a coverage with a big money worth, promoting the coverage is a greater possibility than the shopper strolling away with nothing.

The underside line: Purchasers could possibly be leaving cash behind. Some could possibly be shedding tens of hundreds and even lots of of hundreds of {dollars}.