The number and amount of lapsed life insurance policies by U.S. seniors over age 65 is astounding: more than 250,000 policies with a combined face value of more than $57 billion are lapsed and surrendered back to life carriers each year. The average face value of those policies is approximately $225,000.
And that only includes universal and variable life policies that most people think are best-suited for life settlements. If term life is added, which often includes policies that are also attractive for life settlements, and ordinary life policies, the total exceeds $112 billion.
These amounts are based on publicly available information as of 2010. The number and amount of face value of policies today is certainly greater.
John Welcom, founder and chief executive officer of Welcome Funds, presented this research earlier this week at LISA’s Fifth Annual Institutional Investor Conference in New York. Previous studies have provided estimates about the overall size of the life settlement market based on analyzing the total amount of life insurance inforce. This is the first work that is based on the number and face value of policies lapses and surrendered back to life carriers.
What makes the study relevant? It validates the need for a marketplace where seniors who have policies that are no longer needed or perhaps affordable can realize a value often many times greater than its cash surrender value. The study provides the foundation for LISA’s mission to educate American consumers and their financial advisors about an important option for potentially unlocking billions of dollars of hidden value in life policies that could provide valuable financial resources in retirement.
Think about it. Seniors who held more than 250,000 life insurance policies either unconsciously or knowingly allowed those policies to lapse. Billions of dollars of potential “real value” was surrendered back to life companies for no value.
Meanwhile, a survey by the Insurance Studies Institute reported that less than 50% of seniors are aware about the option to consider selling their life policy. Further, 90% of seniors who had lapsed a policy would have considered selling it if they had known a life settlement was an option.
Thanks to this new research, we now have a benchmark for the serious amount of financial value available to seniors over age 65 from the possible sale of their life insurance policies. Now more than ever, there is an enormous need to educate seniors and their advisors about the alternatives available to lapsing their life insurance policies.
LISA must take on the responsibility to provide this consumer education and to help foster a robust life settlement market.