The Life Insurance Gap: Why So Many Seniors May Never Know They Could Sell a Policy
Hundreds of thousands of older Americans are estimated to let life insurance lapse each year. New market data shows just how much more value some policyholders may receive when they explore the secondary market first.
By Rob Haynie – Forbes Business Council Member & Life Settlement Industry Expert
For many older Americans, life insurance becomes a very different financial decision than it was when the policy was purchased.
The mortgage may be gone. Children may be financially independent. A spouse may have died. An estate plan may have changed. A business may have been sold. Or the premiums may simply have become difficult to justify after retirement.
At that point, a policy that once served an important purpose can start to look like an expense.
For some policyowners, the decision eventually comes down to whether to keep paying premiums, surrender the policy to the insurer, or allow it to lapse.
There is another possibility that is often overlooked: selling the policy through the life settlement market.
The numbers surrounding that choice are worth understanding.
More Than 500,000 Seniors Are Estimated to Lapse Policies Each Year
The often-cited estimate that more than 500,000 seniors lapse life insurance policies each year comes from research attributed to the Insurance Studies Institute. The figure has been cited for years by insurance and senior-care organizations discussing the lack of awareness surrounding life settlements.
That number should be used carefully.
It does not mean that 500,000 policies are eligible for a life settlement.
A policy's potential eligibility can depend on a range of factors, including the insured's age and health, the type and size of the policy, premium requirements, ownership and other policy-specific considerations. Not every policy that lapses would make sense for a settlement transaction.
But the number still illustrates the scale of the issue.
At the same time, the Life Insurance Settlement Association, or LISA, currently reports that seniors age 65 and older lapse or voluntarily surrender more than $100 billion in life insurance face value each year. That is the policy's death-benefit amount, not $100 billion in cash that seniors could necessarily receive by selling those policies.
That distinction matters.
The question is not whether every dollar of that face value could be converted into cash.
The question is whether some policyowners are giving up an asset without first understanding all of their available options.
The Settlement Market Is Still Tiny Compared With the Number of Policies Being Given Up
The latest LISA market data puts the disparity into sharper focus.
In 2025, LISA members completed 2,955 life settlement transactions. That was up from 2,699 transactions in 2024.
That is nowhere near the estimated 500,000 seniors who lapse policies annually.
But the comparison needs to be handled carefully.
The 500,000 figure is an estimate of seniors lapsing life insurance policies. The 2,955 figure represents transactions completed by LISA members. They are not measurements of the same population, and the numbers cannot be used to calculate a national eligibility rate.
Still, the difference is striking.
It suggests that the life settlement market remains a relatively small part of the broader life insurance universe, while awareness of the option may still be limited among older policyowners.
That is particularly important because surrendering or allowing a policy to lapse can be a significant financial decision.
What the 2025 Numbers Actually Show
This is where the current market data becomes particularly interesting.
According to LISA's 2025 member data, the average policyowner who surrendered a policy received $24,360 in cash surrender value.
The average consumer who sold a policy through a LISA member received $212,066 through a life settlement.
That is nearly nine times the average surrender value.
LISA also reports that its members paid $626.6 million to consumers in 2025.
The association estimates that policyowners received $554.6 million more through those transactions than they would have received through surrender.
There is another notable data point.
The average cash surrender value reported by LISA fell from $33,493 in 2024 to $24,360 in 2025, a 27% decline.
That does not mean every policyowner would receive nine times the surrender value by selling a policy.
It means that among the policies represented in LISA's 2025 member data, the average life settlement payout was nearly nine times the average surrender value.
That is a very different statement, and an important one.
Why Would Someone Sell a Life Insurance Policy?
There is no single reason.
A policy may have been purchased decades earlier to replace income, protect a spouse, cover a mortgage, provide for children, support a business or address an estate-planning need.
Circumstances can change.
Someone who bought a policy at 45 may reach 75 and discover that the original reason for owning it no longer exists. Another policyowner may still value the death benefit but find the premiums increasingly difficult to maintain.
Others may need additional liquidity during retirement.
The National Association of Insurance Commissioners advises consumers considering a life settlement to first determine whether they still need the insurance, whether they could qualify for replacement coverage, what they would receive from a settlement, what costs may apply and what other consequences could result.
In other words, selling is not automatically the right answer.
It is an option that deserves to be evaluated before a policy is surrendered or allowed to lapse.
A Life Settlement Is Not the Same as Surrendering a Policy
With a surrender, the policyowner gives the policy back to the insurance company in exchange for whatever cash surrender value is available under the policy.
With a life settlement, the policyowner sells the policy to a third party for a cash payment that is generally more than the policy's cash surrender value but less than its net death benefit. The buyer becomes responsible for future premiums and ultimately receives the death benefit when the insured dies.
That difference is fundamental.
The policyowner is no longer simply terminating the policy.
They are selling an asset.
But the transaction also means giving up the future death benefit and transferring ownership of the policy. That decision can have consequences for beneficiaries, taxes, government benefits and future insurance needs. The NAIC specifically advises consumers to understand those issues before proceeding.
Not Every Policy Should Be Sold
This is perhaps the most important point for consumers.
A life settlement is not free money.
If family members still depend on the death benefit, selling the policy could leave them without coverage they need.
A policyowner should also consider whether the policy has valuable features, whether premiums remain affordable, whether replacement insurance would be available, and whether another option such as reducing coverage or using a policy provision would make more sense.
The NAIC recommends asking whether the owner still needs life insurance and whether they would be able to qualify for a new policy in the future. It also advises consumers to understand the costs, escrow arrangements, privacy issues and state-specific rules involved in a transaction.
That is why the decision should be evaluated before a policy is allowed to lapse.
Once a policy is gone, the opportunity to evaluate a sale may also be gone.
The Bigger Problem May Be Awareness
The most important takeaway from the numbers is not that hundreds of thousands of policies should be sold.
There is not enough evidence to make that claim.
The more defensible conclusion is simpler:
A large number of older Americans are making decisions about life insurance without necessarily considering every available option.
The estimated 500,000 annual senior lapses show the scale of policies leaving the active market. LISA's current data shows that thousands of policies are being sold through its member providers. And the 2025 results demonstrate that, for the policies that actually reached LISA members and completed a settlement, the average consumer received substantially more than the reported average surrender value.
Those facts do not prove that a life settlement is right for every senior.
They do suggest that surrendering or abandoning a policy should not necessarily be the first and only question.
Before making that decision, policyowners may want to ask a more basic one:
What is this policy worth if I sell it?
For some older Americans, the answer could materially change the retirement-planning conversation.
Editorial Disclosure
This article is for educational and informational purposes only and is not financial, legal, tax, insurance, investment or estate-planning advice. A life settlement is not appropriate for everyone. Selling a life insurance policy can affect beneficiaries, taxes, eligibility for government programs and future insurance needs. Policyowners should review their individual circumstances and consider consulting qualified insurance, financial, legal and tax professionals before making a decision.
The 500,000 annual senior-lapse figure cited in this article comes from older research attributed to the Insurance Studies Institute and is presented as an estimate, not as a current government count. LISA's 2025 transaction figures represent transactions completed by LISA members and should not be interpreted as a count of every life settlement transaction in the United States. The $100 billion figure cited by LISA refers to face value of life insurance policies lapsed or voluntarily surrendered by seniors, not cash proceeds available through settlements.