Life Settlement Underwriting and Longevity Risk: How Life Expectancy Impacts Your Policy Value

The life settlement market is uniquely exposed to individuals with a host of comorbidities and various health factors. As opposed to primary life insurance, in which most applicants are younger and healthier, life settlement applicants are oftentimes less healthy and older- leading to a shorter life expectancy. In this guide, we will dive all into life expectancy, health impairments and how this impacts upon your life expectancy and how much your life insurance policy is worth.

We will specifically address the following questions:

• What does life expectancy actually mean?
• How is my life expectancy determined?
• Who are the top life expectancy providers in 2026?
• What is longevity risk?

Let's go!

What is life expectancy and why does it matter?

Life expectancy is an important point of data to understand in general (because after all, everyone of us dies at some point), and especially if you are in the process, or considering the sale of your life insurance policy.

What life expectancy actually means is the average amount of time of life that a specific cohort will live for, from a given point of time. General life expectancy in the US is about 79.4, which means that a baby born in 2026 will on average live about 79.4 years. US life expectancy statistics have not been too great lately, with recent data showing that US life expectancy lags far behind other developed countries, despite spending more on health care than any other country.

More specifically, per the CDC, in 2023, life expectancy for males is about 75.8, while for females, it is 85.1.

Just to explain in basic terms how life expectancy works- these are the numbers, on average, that apply to certain groups of people at birth. As life goes on, and the survivors don't die, their life expectancy adjusts accordingly. Meaning, if you take a group of 10 year old males, their life expectancy won't be 65.8 (75.8-10), but rather, will be higher. This is because the initial life expectancy calculation took into account the boys that won't make it from zero to ten.

Life expectancy is important when it comes to selling your life insurance policy since it determines how long you are projected to live.

This impacts two sides of the equation:

• How long the buyer will need to pay premiums for, and;
• On the other hand, when the buyer will receive the death benefit

It is important to note that even if you have a certain life expectancy, say 10 years (or 120 months), that doesn't mean that the assumption is that you will live for exactly 10 years, that is just the average. The buyer will create a cash flow over time, taking probable mortality over time into account, in order to accurately price how much your life insurance policy is worth.

How is my life expectancy determined?

OK- you got to the stage in life that you don't want, or need, your life insurance policy. As we discussed in other blog posts, what you want to do next is figure out how to sell your life insurance policy, and that will be determined, partially, by your life expectancy. After receiving all of your medical records, funds and other potential buyers will generally send your health information to a professional life expectancy underwriter, to underwrite your policy.

Top life expectancy providers in 2026

There are a handful of life expectancy providers that underwrite longevity risk for life settlements, and they include Fasano, 21st, Predictive Resources, Longevity Services Inc (LSI) and Polaris.

These underwriters will generally review all of the medical files and apply a certain debit/credit methodology. Meaning, they will generally take an average life expectancy curve of a male or female (taking smoking into account), and apply certain debits (based on impairment factors) and credits (based on positive factors) and end up with a certain multiplier on the mortality curve (some of the underwriters mentioned above use slightly different techniques).

In cases in which the insured has a clinical, generally life ending disease (such as advanced cancer, ALS, advanced Alzheimer's disease etc), the life expectancy is generally calculated using medical literature.

After reviewing your case, the life expectancy provider will send the report to the fund/broker/provider that ordered it, allowing them to assess the value of your life insurance policy.

What is Longevity Risk?

Now, we discussed how life expectancy is determined (and if you want to figure out how this plays into your policy valuation, take a look at our life expectancy calculator). Where does the risk lie from a buyer perspective?

There actually are two possible risks:

1. General longevity risk

This can be risk on both an individual level (a specific insured outlives their life expectancy), or systemic- the mortality tables of a given cohort were in fact, too short, and therefore, the entire population should have longer life expectancy. This has actually happened in the life settlement space several times, in which life expectancy providers lengthened their underwriting tables.

Just as an aside, the life settlement population generally has a much longer life expectancy than the average American, as this is generally a more affluent population with better access to healthcare.

This lengthening of life expectancy can either be due to false assumptions from the onset, or based on medical improvements, such as statins, or GLP-1 drugs that have hit the market with a storm.

2. Longevity risk based on falsification of medical records

The risk here is that the insured, knowing that they intend to sell their policy, will falsify medical records intentionally, to appear more sickly than they actually are. Professional managers and underwriters can generally pick up on this, but it is something to beware of.

Summing up Longevity Risk

To sum it up, life settlements is all about your health, your comorbidity factors, and how long buyers project you will live. The general rule of thumb is the sicker an individual, the more value buyers will attach to their policy.