How a Life Insurance Policy Can Help Pay for Senior Care While You're Still Alive

Millions of seniors let life insurance policies lapse every year without realizing those policies could be sold for cash to help cover the cost of care.

Here's a scenario that plays out in families across the country more often than most people realize. An aging parent needs help, whether that's an assisted living facility, a home health aide, or just some financial breathing room. The family starts looking at options. Savings are thin. Social Security covers the basics but not much else. Meanwhile, a life insurance policy sits in a filing cabinet somewhere, still active, still collecting premiums every month.

Most families look right past it. They think of life insurance as something that pays out when someone dies, period. But that policy is a financial asset, and in many cases, it can be converted into cash while the policyholder is still alive. The process is called a life settlement, and most Americans have never heard of it.

The cost of care is outpacing everything

It helps to understand just how steep the problem has gotten. Long-term care costs in the United States have climbed nearly 69% since 2004. A semi-private room in a nursing home averaged $94,900 per year in 2023, and that number keeps rising. Home health aides, assisted living, memory care facilities: none of them are cheap, and Medicare covers very little of it.

The U.S. Department of Health and Human Services estimates that 70% of Americans aged 65 and older will need some form of long-term care during their lifetime. Meanwhile, the National Council on Aging reports that roughly 80% of older adults are either financially struggling or at risk of economic insecurity in retirement. That gap between what care costs and what people can actually afford is wide, and it keeps getting wider.

The reality in numbers:

• $94,900 — average annual cost of a semi-private nursing home room (2023)
• 70% of Americans 65+ will need long-term care at some point
• 69% increase in long-term care costs since 2004

So families scramble. They tap into retirement accounts, sell property, take on debt. And often, when the premiums on Mom or Dad's life insurance become too expensive to maintain on a fixed income, the policy just gets dropped. The insurance company pays out the cash surrender value (which is usually pennies on the dollar compared to the death benefit), and the policy disappears.

What most families don't know is that there was probably a much better option sitting right in front of them.

What a life settlement actually is

A life settlement is the sale of an existing life insurance policy to a third-party buyer, typically an institutional investor like a pension fund, hedge fund, or asset management firm. The seller receives a lump sum cash payment that's significantly more than the cash surrender value the insurance company would have paid. The buyer takes over premium payments and eventually collects the death benefit.

This isn't a new concept or a loophole. The U.S. Supreme Court established in 1911, in a case called Grigsby v. Russell, that a life insurance policy is personal property and can be freely sold, the same way you'd sell a house or a car. Life settlements are regulated in 43 states and Puerto Rico, covering about 90% of the U.S. population, with consumer protections that include mandatory disclosures, licensed broker requirements, anti-fraud provisions, and a rescission period that lets sellers change their mind after signing.

Life settlements are legal and widely available. The real issue is that almost nobody knows about them.

55% of seniors aged 65 and older don't know life settlements exist. And according to the Insurance Studies Institute, 90% of seniors who let a policy lapse said they would have considered selling it if they'd known that was an option.
— Source: LISA Survey; Insurance Studies Institute (2010)

That gap between "didn't know" and "would have considered it" represents billions of dollars in lost value every year. The Life Insurance Settlement Association (LISA) estimates that seniors collectively lose approximately $37.5 billion annually by lapsing or surrendering policies that could have been sold for considerably more on the secondary market.

What kind of money are we actually talking about?

This is where the numbers get people's attention. When you surrender a life insurance policy back to the insurance company, you receive the cash surrender value, which is often just 3–5% of the policy's face value. With a life settlement, sellers have historically received four to seven times that amount. In 2024, the average was 6.5 times the cash surrender value, according to LISA's annual market data survey.

A 2013 study from London Business School, led by Professor Narayan Naik, analyzed over 9,000 life insurance policies with more than $24 billion in combined death benefits. The researchers found that Americans who sold their policies collectively received more than four times what they would have gotten by surrendering those same policies to their insurance carriers.

Industry data from the first half of 2024 shows that the average policy sold through a life settlement had a face value of about $1.6 million, and the average net amount paid to the seller was roughly $285,000, or about 20% of the death benefit. But those are averages across a wide range. Smaller policies sell too, and the percentage varies based on the seller's age, health, policy type, and other factors.

How settlement payouts break down

Payouts typically range from 10% to 25% of a policy's face value for standard cases. Sellers who are older or have significant health conditions can see offers well above 25%. Viatical settlements, where the seller has a terminal illness with a life expectancy under two years, can reach 50–80% of face value.

The cash surrender value always sets the floor. No rational seller would accept less than what the insurance company is already offering. Everything above that floor is money the seller would have otherwise walked away from.

How the process works, step by step

The process takes about 60 to 90 days from start to finish, which surprises some people who expect it to drag on. It generally works like this.

The seller (or their family, or their financial advisor) contacts a licensed life settlement broker. The broker reviews the policy to determine whether it's likely to qualify. If it looks viable, the broker gathers medical records with the seller's written authorization and obtains independent life expectancy reports from specialized medical underwriters. These reports are what drive the policy's value on the secondary market, because buyers are pricing based on how long they'll need to pay premiums before the death benefit pays out.

The broker then submits the policy to a network of licensed institutional buyers, typically 10 to 20 or more at a time. Each buyer runs the numbers through their own actuarial models and submits a competitive offer. Industry data shows that closed transactions in the first half of 2024 averaged nine bids per policy, spread across 12 different licensed buying firms. That competition between buyers is the whole engine. It's what pushes the price up beyond what any single buyer would offer on their own.

Once the offers come in, the seller reviews them with their broker, decides whether to accept, and if so, signs closing documents with a notary. Funds are held in escrow and released after the transfer is verified. The seller receives payment by check or wire, and the buyer assumes ownership of the policy going forward.

There is no cost to the seller upfront. No application fees, no medical exams (just a paperwork-based review of existing medical records), and no obligation to accept any offer. The broker's commission, typically in the 15–30% range, is paid out of the settlement proceeds if and when a sale closes.

Who qualifies

Life settlements aren't for everyone, and a responsible broker will tell you that upfront. The general qualification parameters look like this:

The average insured age at settlement is about 76, but there's no hard cutoff in either direction as long as the policy and health profile meet the underwriting criteria. Policies owned by individuals, trusts, or corporations can all be considered.

Selling versus surrendering: what the math looks like

The difference between selling a policy on the secondary market and surrendering it to the insurance company is significant enough that it's worth looking at side by side.

In 2024 alone, LISA reports that its member firms paid $511 million more to policy sellers than those sellers would have received had they simply surrendered their policies. And that's across fewer than 2,700 completed transactions. When you consider that roughly 500,000 qualifying policies lapse or are surrendered each year without the owner ever exploring a life settlement, the math is hard to ignore.

A real-world example

A 74-year-old man held a $1 million indexed universal life policy. His cash surrender value was just $41,000. The rising cost of insurance charges inside the policy had eaten into the cash value over the years, and the premiums were becoming harder to justify on a retirement budget. He was leaning toward surrendering and walking away with that $41,000.

Instead, a licensed broker submitted the policy to competing institutional buyers. The result was a life settlement of $185,000, roughly 4.5 times the surrender value. That's $144,000 more than his insurance company was willing to pay, money that went toward covering his care and living expenses.

In another case, a 69-year-old woman had a $500,000 convertible term policy that was about to expire. The cash surrender value was zero, the policy was literally about to become worthless. Through a broker-facilitated process that converted the term policy to permanent insurance and then marketed it to buyers, she received $72,000 from an asset she was days away from losing entirely.

Why working with a broker matters

There are two ways to sell a life insurance policy. You can sell directly to a buying company, or you can work with a licensed broker who markets your policy to multiple buyers on your behalf. The difference in outcome can be enormous.

Direct buyers are companies that purchase policies straight from seniors, often through television ads, direct mail, or online marketing. They make a single offer and they're buying on their own behalf, which means their goal is to acquire the policy at the lowest price possible. They have no fiduciary duty to the seller. They represent their own financial interests.

A licensed life settlement broker, on the other hand, represents the seller exclusively and owes a legal fiduciary duty to act in the seller's best interest. The broker creates competition by submitting the policy to many buyers at once. Competition drives the price up. That's the entire mechanism.

What competition looks like in practice

A direct buyer approached a policyholder and offered $800,000 for two life insurance policies. That sounds like a lot of money, and for someone who doesn't know the market, it might seem generous.

A broker then took those same two policies and marketed them to a network of competing institutional buyers. The final settlement price after competitive bidding was $1,856,000. After all broker commissions were paid, the seller netted $1.7 million, more than double what the direct buyer had offered.

The direct buyer's initial offer turned out to be about 43% of what the policies were actually worth.

Even after paying a broker's commission (which typically runs 15–30% and averages around 22% industry-wide), sellers who work with brokers routinely come out well ahead compared to direct buyer offers. The commission pays for itself many times over because of the competitive pressure the broker creates.

When a life settlement might not be the right move

An honest conversation about life settlements should include the situations where selling doesn't make sense. If the policyholder's beneficiaries still depend on the death benefit, selling may cause more harm than good. If the policy is relatively new and the insured is still in good health, the offers may be too low to be worth pursuing. And if there are other ways to access the policy's value, like an accelerated death benefit rider, a policy loan, or converting to a reduced paid-up policy, those should all be explored first.

A responsible broker will walk through all the alternatives before recommending a settlement. In regulated states, brokers are actually required to inform sellers about alternatives to selling, including accelerated death benefits, policy loans, and reduced paid-up options. If a different path makes more financial sense, a good broker will tell you that.

What this means for families managing senior care

If you're an adult child helping a parent manage their finances, or a senior trying to figure out how to fund your own care needs, it's worth asking a simple question: is there a life insurance policy in the picture that's underperforming, too expensive to maintain, or simply no longer needed?

Right now, 38 million life insurance policies are owned by American seniors over the age of 65, with collective face value exceeding $3 trillion. Over 11 million policies valued at more than $754 billion are surrendered or lapsed every single year. Most of those policyholders walk away without ever knowing they had an option to sell. And 85–88% of all life insurance policies never pay a death benefit at all. They get surrendered, they lapse, or they expire.

A life settlement won't solve every family's financial challenges. But for those who qualify, it can mean the difference between depleting savings to pay for care and having a real financial cushion when it's needed most. The first step is simply knowing the option exists.

If you think a policy might qualify, reach out to a licensed life settlement broker (not a direct buyer) and ask for a free, no-obligation evaluation. There is no cost for the assessment, no medical exam required, and you're under zero pressure to accept any offer that comes back. Maybe the policy isn't a fit and you walk away knowing that for sure. But you might also uncover a financial resource you didn't know you had.

About the Author

Jeffrey Hallman is the founder of Citizens Life Group and a fiduciary advisor at Asset Life Settlements, a licensed life settlement brokerage. I'm legally bound by fiduciary obligation to secure the highest possible offer for every client I represent. I founded Citizens Life Group after seeing how often seniors get pressured into lowball offers from direct buyers whose only goal is to acquire policies as cheaply as possible.

Data sources referenced in this article: Life Insurance Settlement Association (LISA) Annual Market Data Surveys (2022–2024), London Business School (Professor Narayan Naik, 2013), U.S. Department of Health and Human Services, National Council on Aging, Insurance Studies Institute, and aggregated industry broker transaction data (H1 2024).