The most reliable public benchmark is the U.S. Government Accountability Office’s study of the secondary market, GAO-10-775, which found that policyholders who sold typically received roughly 10% to 35% of the policy’s face value, and on average several multiples of what the same policies would have paid on surrender. That is a wide band because a single input drives almost all of the variation: the insured’s projected life expectancy. Everything else adjusts around it.
Before you use that range, replace the comparison. Almost everyone instinctively compares an offer to the face amount and feels shortchanged. The correct comparison set is what you would otherwise receive: the net cash surrender value, the reduced paid-up death benefit the carrier will issue, an accelerated death benefit if a rider applies, and zero if the policy lapses. Against those numbers, an offer inside the published band is often a very large improvement, and against the face amount it will always look small.
The deadline that matters when you are evaluating a percentage is the shelf life of the underwriting. Life expectancy reports are generally treated as current for roughly six to twelve months. A policy that has been circulating for a year is repriced off a staler file, and the percentage usually moves the wrong way.
In This Article
- Why the Range Is So Wide
- The Variables That Move You Within the Band
- Viatical Percentages Are Different, and Much Higher
- Gross Percentage Versus What You Actually Keep
- How to Tell Whether Your Number Is Reasonable
- When the Percentage Is Beside the Point Because Selling Is Wrong
- Frequently Asked Questions
Why the Range Is So Wide
A buyer is purchasing a future payment of a known amount on an unknown date, and paying premiums until it arrives. The price is the present value of the death benefit, minus the present value of the premiums required to get there, discounted at the buyer’s required rate of return. Funds in this market commonly underwrite to an internal rate of return in the low-to-mid teens.
Run the arithmetic and the range explains itself. Take a $500,000 policy with an estimated $9,000 of annual premium to keep it in force, priced at a 14% required return, purely as an illustration.
If the projected life expectancy is about ten years, the present value of $500,000 discounted at 14% is roughly $135,000, and the present value of ten years of premiums is roughly $54,000. The buyer’s maximum economic price is around $81,000 before margin and transaction costs — about 16% of face.
Shorten the projected life expectancy to about five years and the same policy is worth far more: the discounted death benefit rises to roughly $260,000 and the premium burden falls to roughly $35,000, leaving a much higher percentage of face.
Nothing changed about the policy. Only the mortality estimate changed. That is why the published band spans 10% to 35% and why the answer to what percentage should I expect is genuinely unknowable without the medical file. See how buyers price a policy for the full model.
The Variables That Move You Within the Band
Health and projected life expectancy. The dominant input by a wide margin. Documented, progressive conditions shorten the estimate and raise the percentage. This is also the input most often understated because the medical file submitted was incomplete.
Age. Correlated with life expectancy but not identical to it. A healthy 85-year-old can price better than an unhealthy 70-year-old, and both are priced off the report rather than the birthday.
The cost of carrying the policy. A guaranteed universal life policy that can be sustained on a small no-lapse premium is worth materially more than an identical face amount on an interest-sensitive contract with steeply rising cost of insurance charges. This is the second-largest input and the one most often improvable, by asking the carrier for an illustration solving for the minimum premium that sustains coverage.
Face amount. Larger policies attract more bidders because the fixed costs of underwriting and closing are spread over more value. Below roughly $100,000, most institutional buyers do not bid at all — see minimum policy size.
Policy loans. A loan is generally repaid from the proceeds at closing, reducing your net. A policy with a loan approaching its cash value has little equity left to sell.
Product type. Universal life and guaranteed universal life are the most commonly traded. Whole life trades but its higher premium load can compress pricing. Term is sellable only when it can be converted, and the converted policy is what changes hands.
Viatical Percentages Are Different, and Much Higher
A separate market operates for insureds who are terminally ill, generally understood as a life expectancy under about 24 months. Because the payment arrives sooner and fewer premiums are required, discounting bites far less and prices are materially higher as a share of face — frequently well above half the death benefit, and in some terminal cases higher still.
Two things follow. First, do not benchmark a viatical situation against life settlement statistics; they are different transactions with different economics. Second, before pursuing a viatical settlement, check whether the policy carries an accelerated death benefit rider. Many policies do, most owners do not know it, and the rider pays from the policy itself with no transaction costs and no buyer. Qualifying accelerated death benefit payments to a terminally or chronically ill insured are generally excluded from gross income under Internal Revenue Code section 101(g), subject to the statute’s conditions.
Proceeds from a qualifying viatical settlement with a licensed viatical settlement provider can also be excluded from income for a terminally ill insured under section 101(g), on similar terms. That is a materially better tax result than a standard life settlement, which is a taxable disposition. Any family in this position should have both routes priced and should take the tax question to their own CPA. Our page on life settlements versus viatical settlements compares them.
| Profile | Projected life expectancy | Typical position in the range | Why |
|---|---|---|---|
| Terminally ill insured (viatical) | Under about 24 months | Well above the life settlement band | Payment arrives soon; few premiums required |
| Advanced chronic disease, age 80+ | Roughly 3 to 6 years | Upper part of the 10 to 35 percent band | Short discount period, modest premium burden |
| Moderate impairment, age 75 to 82 | Roughly 7 to 10 years | Middle of the band | Balanced discounting and carrying cost |
| Healthy for age, 68 to 75 | 12 years or more | Bottom of the band or no offer | Long premium stream, heavy discounting |
| High-cost interest-sensitive universal life | Any | Reduced by the carrying cost | Rising cost of insurance charges erode buyer economics |
| Face amount under $100,000 | Any | Generally no offer | Fixed transaction costs exceed the value |
Gross Percentage Versus What You Actually Keep
Percentages quoted in this market are almost always gross. Two adjustments stand between a headline percentage and your bank balance.
Compensation. Broker commissions and any referral arrangements come out of the transaction. In states that adopted the relevant provision of the NAIC Viatical Settlements Model Act, the compensation paid to a broker must be disclosed to the policy owner. Ask for a single page listing every party being paid and the resulting net to seller, and compare on that number rather than the gross.
Taxes. A life settlement is a taxable disposition. The framework comes from Revenue Rulings 2009-13 and 2009-14, as modified by the Tax Cuts and Jobs Act of 2017, whose section 13521 removed the requirement that basis be reduced by cost of insurance charges on a sale and added the reporting regime in Internal Revenue Code section 6050Y. Closings generate Forms 1099-LS and 1099-SB. Broadly, gain up to the excess of cash surrender value over basis is ordinary income and the remainder is generally capital gain, but the computation is fact-specific and belongs with your CPA.
A third adjustment applies to some households: means-tested benefits. Proceeds are a countable resource for Medicaid and Supplemental Security Income in the month after receipt, and they interact with the 60-month look-back. A high percentage of face is not a good outcome if it costs a year of nursing home coverage.
How to Tell Whether Your Number Is Reasonable
Four sanity checks, in order.
1. Ask for the life expectancy report. Which underwriter produced it, what date, and what estimate in months. If it came from a thin file, that is the finding, not the price.
2. Ask what premium the buyer assumed. If they priced off the billed premium rather than the minimum premium that sustains coverage, the carrying cost is overstated and the offer is understated.
3. Compare against cash surrender value, not face. The GAO found sellers received on average several multiples of surrender value. An offer that is a small premium over surrender on a policy with a documented serious health condition deserves an explanation.
4. Ask what your net is. A 22% gross that nets 15% after compensation ranks below an 18% gross that nets 17%.
An offer of 6% of face on a healthy 68-year-old with a long projected life expectancy and a heavily funded universal life contract is probably arithmetic rather than insult. An offer of 8% on an 84-year-old with documented advanced disease is worth challenging. See what to do about a low offer and what affects an offer.
When the Percentage Is Beside the Point Because Selling Is Wrong
Chasing a percentage can obscure the more basic question of whether to transact at all.
The coverage is still needed. A death benefit is generally income-tax-free to the beneficiary under Internal Revenue Code section 101(a). If a surviving spouse without pension continuation, a disabled adult child, or an estate holding an illiquid asset depends on it, no percentage of face replaces 100% of the death benefit at the moment it is needed.
The insured is healthy for their age. You will sit at the bottom of the band or below it, and keeping affordable guaranteed coverage is usually better economics.
Reduced paid-up solves the actual problem. If the pressure is the premium rather than a need for cash, a reduced paid-up election stops premiums permanently, preserves a guaranteed death benefit, and generally creates no tax event. Price it against any offer.
The face amount is under roughly $100,000. There is no market, and no percentage to discuss.
A rider pays more, faster, and tax-free. Check for an accelerated death benefit rider before any sale.
To get a specific read rather than a range, send the policy cover page and the most recent annual statement for a free, no-obligation review, or call (305) 209-7183. Pine Lake Life Solutions provides education and policy reviews only, does not purchase policies, and is not licensed in every state. Nothing here is legal, tax, or investment advice.
Frequently Asked Questions
What percentage of face value do life settlements typically pay?
The most-cited public benchmark is the Government Accountability Office study GAO-10-775, which found sellers typically received roughly 10% to 35% of face value and, on average, several multiples of the cash surrender value the same policies would have produced. Where you land inside that band is driven almost entirely by the insured’s projected life expectancy.
Why would my offer be below 10% of face?
Usually a long projected life expectancy combined with a high cost of keeping the policy in force. An interest-sensitive universal life contract with steeply rising cost of insurance charges on a healthy insured can produce a very small number. Ask for the life expectancy report and the premium assumption before concluding the offer is unfair.
Do viatical settlements pay more?
Materially more as a share of face, because the payment is expected sooner and fewer premiums are required. Before pursuing one, check whether the policy carries an accelerated death benefit rider, which pays from the policy itself with no transaction costs. Qualifying payments to a terminally or chronically ill insured are generally excluded from income under section 101(g).
Is the quoted percentage what I actually receive?
No. Quoted percentages are gross. Broker compensation and any referral arrangements come out of the transaction, an outstanding policy loan is generally repaid from the proceeds, and the sale is a taxable disposition. Ask for a written statement of the net to seller after every party is paid, and compare offers on that figure.
Can I do anything to increase my percentage?
Two things move the model. Submitting complete, current medical records from every treating provider can shorten a projected life expectancy built on a thin file. And asking the carrier for an illustration solving for the minimum premium that sustains coverage can lower the carrying cost a buyer assumed. Both are free and both are frequently overlooked.
How does the offer compare to surrendering the policy?
That is the comparison that matters. The GAO found sellers received on average several multiples of cash surrender value, because secondary market pricing is driven by death benefit and health rather than by account value. Term policies have no surrender value at all, so for a converted term policy the alternative is receiving nothing.
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Related Reading
- Life Settlement Payout Percentage Explained
- How Much Can I Get For My Life Insurance Policy
- How Buyers Price A Policy
- What Affects A Life Settlement Offer
- What Is My Policy Worth Formula
- Life Settlement Vs Cash Surrender Value
- Minimum Policy Size For A Life Settlement
- Life Settlement Vs Viatical Settlement
- Low Offer What To Do
Pine Lake Life Solutions does not purchase life insurance policies and does not provide legal, tax, or investment advice. Information provided is for educational purposes only. Eligibility for any option, including life settlements, is not guaranteed and depends on individual circumstances, policy terms, underwriting, and market conditions. Consult independent legal, tax, or financial professionals before making decisions regarding a life insurance policy.