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Key Points in This Section

  • Senior settlement prospects are older policyowners (typically age 70+) whose health has declined since the policy was issued and whose original need for the coverage no longer exists
  • The most common prospect situations involve policies originally purchased for estate planning, key person coverage, or buy-sell arrangements that are no longer needed
  • Agents who have sold large life policies to older clients are ideally positioned to identify settlement prospects in their own book of business
  • Key referral sources include insurance agents and brokers, estate planning attorneys, CPAs, independent financial planners, trustees, and bank trust departments
  • A growing direct-to-consumer channel has emerged, with policyowners increasingly discovering settlement options through online resources and advertising
  • Agents may receive referral fees for introducing prospects to settlement companies, subject to state licensing requirements

Senior Settlements — Prospects

Who Is a Senior Settlement Prospect?

The senior settlement prospect is an older individual — typically age 70 or older — who owns a life insurance policy with a substantial face amount (commonly $250,000 or more) and whose health has declined since the policy was originally issued. The key distinguishing factor from a viatical settlement prospect is that the senior is not terminally ill — but may have conditions such as heart disease, diabetes, or other chronic ailments that are life-shortening.

Beyond the basic health and age requirements, the ideal senior settlement prospect is one whose original reason for purchasing the policy no longer exists. Common situations include:

Estate Tax Planning Purchased coverage to pay anticipated estate taxes. Changes in estate tax law, a reduction in estate value, or the availability of other planning strategies may have eliminated the need.
Key Person Coverage Policy was purchased to protect a business against the loss of a key employee or owner. The key person has retired or left the organization, eliminating the business need.
Buy-Sell Funding Policy was purchased to fund a buy-sell agreement. The agreement has since been restructured, the business sold, or the co-owner has predeceased the insured, making the coverage unnecessary.
Mortgage or Debt Coverage Policy was purchased to cover an outstanding mortgage or business loan. The debt has since been paid off or otherwise discharged.
Divorce or Family Change Policy was purchased to protect a spouse or dependents. A divorce, death, or change in family financial circumstances has altered the need for coverage.
Premium Unaffordability The policyowner can no longer comfortably afford the ongoing premium payments and is considering lapsing or surrendering the policy — a settlement may produce far more than the cash surrender value.

Referral Sources

Identifying senior settlement prospects requires access to individuals who own substantial life insurance policies and who may be at a stage of life where their insurance needs have changed. The most effective referral sources include:

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Insurance Agents and Brokers Agents who have placed large policies with older clients are ideally positioned to identify settlement opportunities. An agent reviewing a client’s coverage during an annual policy review may recognize when a policy no longer serves its original purpose. Agents who refer clients to settlement companies may be entitled to a referral fee, subject to state licensing requirements.
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Estate Planning Attorneys Attorneys who specialize in estate planning regularly review their clients’ financial situations and insurance holdings. A settlement may fit naturally into an estate plan where coverage is no longer needed or where the client needs liquidity.
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CPAs and Independent Financial Planners Accountants and financial planners who take a comprehensive view of client finances are well-positioned to identify policies that have outlived their purpose. They are increasingly familiar with life settlements as a financial planning tool.
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Bank Trust Departments and Corporate Trustees Trustees who oversee irrevocable life insurance trusts (ILITs) or other fiduciary arrangements may find that the trust’s insurance holdings no longer align with the trust’s current purpose. A settlement can unlock value for trust beneficiaries.
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Direct-to-Consumer Channels Since the original writing of this course, a significant direct-to-consumer channel has emerged. Settlement companies now actively market to policyowners through television advertising, online campaigns, and digital platforms. Many policyowners today discover the settlement option independently and approach brokers or providers directly. This development has broadened market awareness considerably, though it also underscores the importance of proper disclosure and ethical conduct — covered in Chapter 5.
A note on broker-dealer restrictions: Historically, many major broker-dealers prohibited their registered representatives from discussing life settlements with clients, limiting one of the primary referral channels. While this restriction has eased somewhat as the market has matured, agents and advisors should be aware of any firm-specific policies before discussing settlement options with clients.

The Agent’s Role

For insurance agents, the senior settlement market creates both an opportunity and a responsibility. The opportunity lies in adding value to existing client relationships by reviewing policies that may now be worth more on the secondary market than their cash surrender value. The responsibility lies in ensuring that clients receive proper, unbiased information about their options — including the impact on beneficiaries, the tax consequences of a sale, and the value of obtaining multiple competing bids.

Agents should never discourage a client from exploring a life settlement simply to preserve a policy that generates ongoing commissions. Doing so would place the agent’s interests ahead of the client’s — a clear ethical violation addressed further in Chapter 5.

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