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15 March 2018

Boost to Life Settlement market

The Tax Cuts and Jobs Act 2017 (TCJA) is perhaps the most significant tax legislation to be introduced in the US since the Tax Reform Act of 1986.

The new legislation was signed into US Federal law at the end of 2017, and has been broadly welcomed by the Life Settlement industry as a change that will further support initiatives to increase policy supply.

Whilst the scope of the TCJA is extensive, its impact on the supply of Life Settlements in the market is twofold:

  • The tax position of a life assured selling their policy in the secondary market is now more favourable.
  • The estate tax exemption has been increased, meaning that policies originally purchased for estate tax purposes are now more likely to come to the secondary market.

Given the IRS's taxation rulings on Life Settlements in recent years, the TCJA brings welcome clarification on the future taxation of LS transactions in the secondary market.

In essence, under the TCJA, a policy holder looking to sell their policy in the secondary market can now offset their cost of insurance against any gains realised through sale; hence reducing their tax liability. This brings the taxation on policy sales in line with the tax treatment for surrendered policies - a logical step.

Further, those seniors that took out policies in recent years for estate planning purposes may find that the doubling of estate tax exemption to USD22.4 million under the TCJA could mean their policies have become surplus to their tax planning requirements; resulting in the life settlement option becoming more attractive.

Ioan Roberts, Head of Life Settlement Trading at SL Investment Management said, "There are a number of initiatives under way at present in the US aimed at increasing policy supply to meet investor demand. The implementation of the TCJA should provide a welcome boost in this respect".

"Direct to consumer initiatives are just one important step that life settlement providers are taking to raise consumer awareness of the life settlement option and we are optimistic about the positive impact these efforts are likely to have on secondary market supply volumes in 2019 and beyond."

"Under the TCJA there are likely to be more reporting requirements for parties involved in the origination chain, and investment managers - but, this is all perfectly manageable given the overall benefits to the industry".

For further information on the Life Settlement market, or to discuss Life Settlement investments in general, please contact