Although life insurance is a mature industry, it still continues to evolve. In the past, much of that evolution has been in the expansion of products, features, and riders that allow policyholders to customize their insurance to specific situations. More recently, the industry has been shaped by an increasing interest in life settlements — these are transactions that transfer ownership of a life insurance policy from the policyholder to a third-party.
Selling a life insurance policy has become more popular in correlation with recent economic conditions.
- Inflation: The high U.S. inflation rate contributes to rising insurance premiums, to the point where some policies are unaffordable to maintain. Even if someone can maintain coverage, the purchasing power of the death benefit dwindles as inflation causes the value of the dollar to go down. Policyholders may find that their death benefit no longer covers the expenses it was intended to due to inflation, and as a result — may choose to sell their policy and reinvest proceeds.
- Rising long-term care costs: Long-term care costs have increased by 68.79% since 2004, which has prompted many seniors (who typically pay the highest life insurance premiums) to sell their policies to afford care. This may become even more common, as long-term care costs are primed to skyrocket due to an influx of aging Baby Boomers (known as the “silver wave”) who need care and a labor shortage in nursing homes. With demand that exceeds supply, care costs may increase and life settlements could become even more common among seniors.
For more insights about how life insurance and settlements are evolving, check out these notable statistics for 2023.
Life Insurance Statistics for 2024
Stats about Life Insurance Ownership
- 50% of American adults have life insurance: Half of Americans currently own a life insurance policy, and ownership has decreased each year since 2018 (at 59% ownership).
- The life insurance need gap is at 18%, an all-time high: The life insurance need gap refers to the difference in the percent of people who say they need coverage and those who have it. In 2022, 68% of people reported needing life insurance while only 50% of people had coverage, so the need gap is 18%. This gap has more than doubled since 2011.
- 106 million Americans need more life insurance coverage: A survey found that 41% of Americans say they need life insurance (if they don’t have a policy) or more coverage than they currently have.
- Each year, about 30 million life insurance policies are purchased: The number of life insurance policies issued annually has remained steady for the last 20 years, except for prominent increases in 2001 and 2002 related to the 9/11 terrorist attack.
- 51% of life insurance policies are permanent: Permanent life insurance is the most popular type, accounting for 51% of all policies compared to 34% ownership of term life. Additionally, 15% of policyholders have both types of coverage.
- 60% of Americans buy life insurance to pay for final expenses: The most common reason for buying life insurance is to pay for final expenses, but other reasons include leaving an inheritance to beneficiaries (43%), covering debts (35%), and income replacement for beneficiaries (32%).
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27% of adults only have life insurance through their employer or a membership organization: Group life insurance is free or low-cost coverage offered through an employer or other organization. While group life insurance is affordable, it is typically offered only in low, default amounts: typically $50,000 or one to two times the employee’s annual salary. That usually means the coverage won’t be well aligned with an individual policyholder’s financial needs.
Stats about Life Insurance Costs
- U.S. life insurance premiums increased 21% in the second half of 2021: Insurance costs are rising in-part because of inflation. While inflation and premiums are increasing, the value of a death benefit stays the same which means purchasing power is diminished. When it comes time to collect, beneficiaries may find the benefit doesn’t provide the financial protection it was intended for.
- 27% of Americans worry about being able to afford a life insurance policy: The top concern about buying life insurance is being able to afford coverage, as more than a quarter of Americans worry about being able to maintain premiums.
- More than half of Americans overestimate the cost of life insurance: In the Annual Insurance Barometer Survey, more than half of all Americans overestimated the annual cost of a term policy. By generation, 51% of Gen Z and 43% Millennials overestimated the cost by 488%.
- The average life insurance policy has a face value of $168,000: The average face value on a life insurance policy, which is equal to the policy’s original death benefit, is $168,000. In total, the face value of all life insurance policies purchased in the U.S. is $3.29 trillion.
- Women pay 30% less for life insurance on average vs. men: Life insurance premiums for women are about 30% lower than life insurance premiums for men of the same age and general health. Insurance carriers charge women less because they have a longer average lifespan. This means it’s more likely a woman’s policy will lapse or be surrendered before the death benefit is paid.
- Life insurance premiums increase 8-10% for every year of age: Age is one of the largest factors in the cost of life insurance, and over time premiums will increase in correlation with your age. This is due to increased health risks that come with age. Premium increases are less severe when you’re young, usually about 5% per year in your 40s. However, in your 50s premium increases can be 12% annually.
Stats about Life Insurance Buying Preferences
- 50% of Americans say a required medical exam would make them less likely to purchase insurance: Medical exams are used by insurers to gauge the applicant’s health status and set premiums based on risk. Without a medical exam, healthy individuals may pay higher premiums due to insurers compensating for unknown risk.
- 41% of Americans prefer buying life insurance in person: Buying in-person is the preferred way to purchase a life insurance policy, followed by over the phone (29%), through an employer (11%), email (8%), and by mail (5%).
- 40% of insured U.S. adults wish they’d purchased life insurance earlier: Life insurance gets progressively more expensive as the applicant gets older. Younger policyholders will pay a longer stream of premium payments, but each year’s investment will be lower. Buying permanent insurance earlier also allows more time to build up that policy’s cash value.
Life Settlement Industry Statistics for 2024
- 85% or more of life insurance policies don’t pay a death benefit: Statistically speaking, 85% of term policies and 88% of universal life policies will expire, lapse, or be surrendered before a death benefit is paid. Those statistics represent lost dollars for the policyholders who invest in life insurance without ever fully realizing its value.
- Life settlements pay policyholders 4X more on average than the cash surrender value: A report from the London Business School estimates that life settlement proceeds from selling a policy are about four times more, on average, than cash surrender values.
- $200 billion worth of life insurance will be surrendered or lapsed annually through 2027: Even as closed settlements and third-party analyses continue to confirm that life settlements generate higher proceeds for policyholders, people still choose to lapse or surrender their life insurance. In many cases, these policyholders simply don’t know that selling their policy is an option.
- More than half of Americans don’t know they can sell their life insurance: More than half (55%) of Americans aren’t familiar with life settlements and more than two-thirds (68%) of Americans aren’t familiar with viatical settlements. These policyholders are most at risk for lapsing or surrendering their life insurance for less than it’s worth.
- The life settlement industry is growing 34% per year on average: The life settlement industry is poised to grow substantially in the coming years. Contributing factors include an aging population and generally low balances in retirement savings accounts. Between 2015 and 2025, the U.S. senior population will grow by 38%, and many of those seniors won’t have sufficient retirement savings to replace their working income. Those who have life insurance — estimated to be 50% of seniors — can liquidate those life insurance assets to produce much-needed funding for retirement.
- $37.5 billion in lost wealth for seniors: The projected $200 billion in life insurance that will be lapsed or surrendered each year is potentially worth $50 billion on the life settlement market. That assumes a payout rate of 25%, the midpoint of the typical life settlement payout range of 20% to 30% of the policy’s face value. Pulling in the London Business School conclusion that life settlements generate four times more than cash surrender value, policyholders receive an estimated $12.5 billion in cash, or less, for these life insurance assets. That’s 25 cents on the dollar, which amounts to $37.5 billion in lost wealth for seniors.
Life Insurance and Life Settlement Trends
Demand for new life insurance policies has been stagnant since the early 2000s, even as insurers have expanded product offerings to address specific customer needs. Meanwhile, the life settlement market is creating new financial opportunities for policyholders by allowing them to unlock wealth they didn’t know they had. This adds a new dynamic to an industry that has struggled to increase its relevance with consumers over the last 20 years.
In the years ahead, forward-thinking insurance carriers will recognize that a growing life settlement market benefits them, their brokers, and their customers. Carriers that resist life settlement growth, on the other hand, may face some reputation consequences. Policyholders and consumers are likely to interpret that resistance as a profit-oriented stance that disregards their customers’ financial wellbeing.
If you are interested in selling your life insurance through a life settlement, contact Harbor Life Settlements today for a free estimate and find out how much your policy could be worth.
