Key Takeaways
- Policyholders who sold life insurance policies through LISA member firms in 2025 received an average of $212,066, compared to the average cash surrender value of $24,360 — a gap of $187,706 per policy.
- The average cash surrender value offered by insurers dropped 27% year-over-year, falling from $33,493 in 2024 to $24,360 in 2025, widening the secondary market advantage further.
- Most agents are not required by law to inform clients of the life settlement option when they consider surrendering or lapsing a policy — a regulatory gap that several states have addressed but the majority have not.
Policyholders who surrendered life insurance policies to their insurers in 2025 left an average of $187,706 on the table. That is the gap between the $24,360 average cash surrender value insurers paid and the $212,066 average payout received by policyholders who sold their policies on the secondary market through Life Insurance Settlement Association member firms, according to LISA’s 2025 annual market data released May 19, 2026.
The gap itself isn’t new. What is new is that the insurer side of the equation got significantly worse. The average cash surrender value declined 27% year-over-year, falling from $33,493 in 2024 to $24,360 in 2025. The secondary market held. The result: the distance between what an insurer offers and what a third-party buyer will pay has grown wider at the exact moment policyholders may be feeling financial pressure.
What a life settlement actually is
A life settlement is the sale of an existing life insurance policy to a third-party buyer for more than its cash surrender value but less than its net death benefit. The buyer pays the premiums going forward and collects the death benefit when the insured dies. The seller receives a lump sum now. The transaction is legal, regulated at the state level, and has existed as a formal market since the 1980s. LISA, established in 1994, is the oldest and largest trade organization in the space, with membership covering brokers, providers, financing entities, and service providers.
The math on a typical scenario is straightforward. Take a 68-year-old with a $500,000 universal life policy they can no longer afford to maintain. The insurer quotes a cash surrender value of $28,000. A life settlement broker markets the policy to multiple buyers; competing bids come back ranging from $85,000 to $130,000. The policyholder walks away with more than three times what the insurer offered. That spread exists because the insurer’s surrender value is calculated on the insurer’s terms, primarily the policy’s accumulated cash value minus surrender charges. A secondary market buyer is pricing the policy on different variables: the insured’s age, health status, projected life expectancy, the death benefit amount, and the ongoing premium cost. The two pricing models produce very different numbers.
Why most policyholders don’t know this option exists
In nine years behind the desk, I cannot count how many clients called to cancel a whole life policy because they needed the cash or couldn’t keep up with premiums. The conversation was always the same: the agent pulls up the cash surrender value, reads the number, and either the client takes it or lapses the policy and gets nothing. Not once, not a single time in my experience working with an independent agency and then a national carrier, did I see a client proactively told they could sell that policy to a third-party buyer for potentially many times the surrender value. This isn’t because agents are malicious. It’s because most agents don’t track the secondary market, some don’t know the numbers, and in most states they are not legally required to bring it up. Several states have now moved to mandate that agents disclose the life settlement option to clients who are considering lapsing or surrendering a policy, but the majority have not. The LISA data released May 19 puts a dollar figure on what that silence costs.
LISA Chair Rob Haynie said in the May 19 release that awareness of life settlements remains relatively low among consumers, and that understanding the secondary market exists can open doors to options many policyholders never realized were available. That framing is accurate but understates the structural problem. Awareness isn’t low because consumers haven’t researched it. It’s low because the person who was supposed to tell them, their agent, had no obligation to do so and, in many cases, a financial incentive not to: a replaced or surrendered policy potentially leads to a new sale, while a settled policy ends the relationship.
The regulatory picture
State insurance commissioners, not any federal body, regulate life settlements. The NAIC adopted a model Life Settlements Act that several states have incorporated into their insurance codes. That model law includes provisions requiring insurers to notify policyholders seeking to surrender or lapse a policy that life settlement may be an option. But NAIC model adoption is voluntary, and as of 2026, a significant number of states have not enacted the disclosure requirement. Consumers in states without the requirement need to ask directly. If your state’s department of insurance has adopted the NAIC Life Settlements Model Act, your insurer is supposed to hand you this information. If they haven’t, the conversation may never happen unless you initiate it.
The broader life insurance market is active. LIMRA’s first-quarter 2026 data, released May 6, showed new annualized premium jumped 10% to $4.5 billion and policy count rose 9%. Whole life held 36% market share at $1.6 billion in new premium, up 9% from Q1 2025. LIMRA’s full-year 2026 forecast was 2–6% growth; the first quarter alone exceeded the low end of that range. More policies being sold means more future candidates for the secondary market, assuming the awareness gap closes.
If you hold a whole life or universal life policy you are considering surrendering or lapsing, the LISA data is a strong argument for at least getting a secondary market appraisal before accepting the insurer’s number. A settlement broker’s appraisal is typically free. The insurer’s offer does not expire the moment you ask for a competing bid. You can review your current coverage options and compare costs at best life insurance and life insurance cost. If you’re already past the point of wanting coverage, understand what your policy is worth on the open market before you sign the surrender paperwork. The 27% drop in average surrender values in 2025 alone suggests insurers are not moving in a direction that favors the policyholder.
