The Role of Life Settlements in Retirement Planning

Retirement planning has never been more complex. Between rising healthcare costs, uncertain market returns, and increased longevity, financial advisors are under pressure to build strategies that preserve capital while generating stable income. One lesser-known tool gaining traction is the life settlement.

A life settlement is the sale of an existing life insurance policy by a senior (usually aged 70+) to an institutional buyer. The investor pays the seller a lump sum greater than the policy’s surrender value, assumes premium payments, and collects the benefit when the insured passes away. This transaction benefits both parties: the policyholder gains immediate liquidity, while the investor acquires a non-market correlated asset.

How Life Settlements Fit in Retirement Planning:

1. Stability of Return: Since life settlements are driven by actuarial data rather than interest rates or corporate earnings, they can provide reliable performance through market cycles.


2. Income Generation: While not structured like traditional yield products, life settlements can be grouped into diversified pools that offer predictable cash flows over time.


3. Diversification: The returns have no correlation to stocks or bonds, meaning they can improve portfolio efficiency and reduce overall volatility.


Importantly, life settlements must be approached with care. The duration of investments can vary, and accurate life expectancy assessments are critical. Advisors should also consider the illiquid nature of the investment and ensure it aligns with the client’s long-term objectives and liquidity needs.

From a fiduciary standpoint, life settlements offer advisors the opportunity to expand their toolkit with a strategy backed by actuarial science, decades of data, and an improving regulatory landscape. As of 2024, over 90% of the U.S. population lives in states that regulate life settlement transactions, offering added protection and transparency.

As more retirees outlive their savings, and traditional income assets deliver suboptimal returns, life settlements are being recognized as a credible, well-structured component of retirement portfolios. Whether used as a hedge against drawdown risk or a source of diversified growth, they offer financial professionals a way to address retirement challenges with innovation and care.

Sources:

Life Insurance Settlement Association (LISA): https://www.lisa.org


NAIC Consumer Guide to Life Settlements: https://content.naic.org