- The “first life settlement” in spirit starts in 1911, when the Supreme Court affirmed you can sell (assign) a valid life insurance policy, like other property.
- The modern industry was born in the late 1980s, via AIDS-era viatical settlements, then matured into senior-focused life settlements as medicine improved.
- The industry’s growing pains were real: fraud, mispricing, uneven regulation, and reputation issues that still echo.
- STOLI became the villain of the 2000s, prompting model laws, enforcement, and major court decisions drawing a bright line between legitimate resale and wager-like origination.
- Today’s market is more regulated and institutional, with trade-group data showing meaningful consumer payouts, while research firms still see large unrealized “market potential.”
The first ever life settlement, and why 1911 still matters
If you want the origin story with a human face, it is surprisingly plain: a man needed money for surgery, so he sold his life insurance policy for cash. The Supreme Court’s Grigsby v. Russell decision (December 4, 1911) upheld that an owner can assign a valid policy to someone who does not have an insurable interest, and that assignee can collect the death benefit.
That ruling did not create a bustling marketplace overnight, but it laid the legal track. Life insurance was not just protection, it was an asset with transfer rights. The secondary market is basically that idea, industrialized.
A key tension sits behind this: American law has long tried to prevent “wagering” on strangers’ lives. Earlier cases on insurable interest reflect that concern, and the industry still lives in that shadow.
The late 1980s: viaticals, urgency, and the first real marketplace
Fast-forward to the AIDS crisis. In the late 1980s, terminally ill policyholders began selling policies for immediate cash, often to cover care and living costs. These were viatical settlements, and they proved something pivotal: there was buyer demand for life-contingent cash flows when life expectancy looked short.
Then medicine changed the math. As treatments improved and life expectancies lengthened, many viatical-era assumptions stopped behaving. Investors faced longer-than-expected timelines, and the market pivoted.
That pivot is a recurring theme in life settlements: when longevity improves, the asset class gets harder for buyers, which can reduce offers, which can shrink volume. Actuarial tables are many things, but they are not sentimental.
The 1990s to early 2000s: life settlements for seniors, plus regulation trying to catch up
As the viatical era cooled, the industry broadened into “life settlements,” generally focused on older insureds with policies they no longer wanted or could afford. Capital got more institutional, underwriting got more formalized (life expectancy evaluations, premium audits, escrow, closing processes), and states began licensing brokers and providers more consistently.
Regulators were not asleep at the wheel. NAIC model acts and regulations emerged and evolved, including revisions that explicitly addressed “life settlements” beyond terminal illness cases. NCOIL also produced a model act that states used as a template. The result today is a patchwork, but it is far more structured than the early years.
The industry’s trials and struggles, the part nobody puts in the brochure
Three recurring problems have shaped the market’s reputation:
- Fraud and bad sales practices
Early viatical investing saw allegations of aggressive marketing and questionable practices, and the echoes carried into senior life settlements in various forms. - Misaligned incentives and opacity
When consumers do not know what their policy is worth, the first offer can look like “the offer.” That is where process matters: competitive bidding, clean disclosures, and clear fee structures. - The longevity problem
Buyers are pricing time. If time expands, returns compress. When returns compress, offers drop. That is the economic weather system this entire category lives under.
STOLI: when a legitimate resale market gets confused with a wager
STOLI (Stranger-Originated Life Insurance) is the industry’s loudest caution sign.
A normal life settlement starts with a policy bought for protection, then later sold because circumstances change. STOLI flips the sequence: a policy is initiated with a third-party investor effectively “in the picture” from day one, despite lacking an insurable interest. That is why regulators and courts treat it as a public-policy problem.
Model laws define and prohibit STOLI, and courts have reinforced consequences. Delaware’s Price Dawe decision is frequently cited in the space, and New Jersey’s Supreme Court has also treated STOLI policies as void from inception under that state’s law. The through-line is consistent: secondary market transfers can be legal, but origination games that masquerade as legitimate insurance are not.
Current state of affairs: more mature, still imperfect, and bigger than most people realize
Two truths can coexist:
- The consumer value can be real. Trade-group reporting for 2024 points to over a billion dollars paid to consumers by reporting members, and an average multiple far above cash surrender value in their dataset.
- The market still has enormous “unused inventory.” Research firms continue to argue that far more policies could be candidates than actually transact, often because policyholders lapse or surrender without ever learning resale is an option.
Conning’s late-2025 research commentary is also telling: it frames 2024 as a “pause” in new settlements while still estimating very large gross market potential and projecting growth over the next decade. In other words: the category is not a fad, it is a financial option that is still unevenly discovered.
Life settlements keep becoming more regulated and more institutional, while public awareness lags behind the economics. The opportunity and the friction live in that gap.
Sources
Grigsby v. Russell, 222 U.S. 149 (1911), case facts and assignment holding (Justia).
Justia Law
Warnock v. Davis, 104 U.S. 775 (1881), insurable interest and anti-wager framing (Justia).
Justia Law
NAIC State Licensing Handbook excerpt on NAIC adoption and revisions of viatical/life settlement models.
NAIC
NAIC Viatical Settlements Model Act (MO-697), broker definition and framework (PDF).
NAIC
SEC Staff Report, “Life Settlements” (July 22, 2010), background plus NAIC vs NCOIL discussion (PDF).
SEC
NCOIL Life Settlements Model Act, STOLI definition (PDF).
NCOIL
PHL Variable Ins. Co. v. Price Dawe 2006 Ins. Trust materials (Delaware Supreme Court opinion PDF).
Delaware Courts
Sun Life Assurance Co. of Canada v. Wells Fargo Bank, N.A. (New Jersey Supreme Court, 2019), STOLI treated as void (Justia).
Justia Law
FDIC, “Senior Life Settlements: A Cautionary Tale” (2025), viaticals to seniors shift and fraud concerns.
FDIC
LISA 2024 Market Data (PDF) and LISA 2024 market-data release summary.
LISA
Conning, “2025 Life Settlements Strategic Study: A Pause for Now” (Nov 24, 2025) and related press coverage.
