What Is the European Life Settlement Association and How It Shapes the Life Settlements Market

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The European Life Settlement Association (ELSA) is at the heart of the European market for trading existing life insurance policies, a niche segment that connects policyholders in need of liquidity with professional investors looking for long-term, decorrelated returns. Although the idea may sound technical, it basically revolves around the possibility of selling a life insurance policy to a third party instead of letting it lapse or surrendering it back to the insurer for a much lower value.

Understanding what ELSA is, why it was created and how it fits within the broader life settlement and viatical settlements landscape is key for investors, intermediaries, regulators and even policyholders who might one day consider selling their policy. This article walks through ELSA’s role, the fundamentals of life settlements, the evolution of regulation and market practices, as well as the main players, risks, opportunities and academic evidence around this alternative asset class.

What Is the European Life Settlement Association (ELSA)?

The European Life Settlement Association (ELSA) is a trade and membership association that represents European investors, intermediaries and service providers active in the life settlement and wider longevity markets. Founded in 2009, ELSA was set up to provide consistent standards, increase transparency and support the responsible development of the industry across Europe.

At its core, ELSA promotes fair dealing and robust market practices in transactions where existing life insurance policies are bought from policyholders and packaged as investments. These transactions are generally known as life settlements when the insured is typically a senior, and viatical settlements when the insured is terminally or chronically ill.

ELSA operates as a membership-based organisation, offering its members access to proprietary research, white papers and educational content, as well as networking opportunities through its conferences and annual symposium. Members include institutional investors, specialist asset managers, life settlement providers, brokers, servicers, valuation firms and legal or actuarial advisers.

One of the most important tools ELSA uses to shape the market is its Code of Conduct and best-practice guidelines. By joining the association, members commit to aligning with these standards, which cover areas such as treating policyholders fairly, robust underwriting, transparent disclosure and compliance with applicable regulations.

To drive its agenda, ELSA relies on a committee structure that brings together experts from different member firms to work on specific topics and development projects. These committees may focus on regulation, valuation methodologies, investor reporting, education, or communication with policymakers and the media, helping ensure the market can function sustainably over the long term.

Mission, Objectives and Activities of ELSA

ELSA’s overarching mission is to foster a transparent, well-regulated and reputable European life settlement industry that benefits policyholders, investors and the broader financial system. The association actively works to make market data and sound research available so that decisions are driven by facts rather than misconceptions.

One of ELSA’s primary objectives is to raise awareness among European investors and distributors about life settlements and related longevity-linked products. Many of these structures were originally developed in the United States, and ELSA acts as a bridge, helping to adapt and introduce such products to European clients under appropriate governance and regulatory frameworks.

Market education is central to ELSA’s work, especially in the aftermath of episodes that damaged trust in financial products, such as the 2008 global financial crisis. With investors more cautious about complex instruments and more demanding about transparency, ELSA positions itself as a thought leader that can help rebuild and maintain confidence through clear standards and communication.

The association’s events calendar typically includes an annual symposium and participation in conferences worldwide where members share research, case studies and market insights. ELSA members are frequently invited as speakers or panellists, reinforcing the association’s status as an authority in the life settlement and longevity markets space.

Governance within ELSA is overseen by a Board of Officers, which has included senior industry figures; for example, in 2017, Scott Willkomm, CEO of Life Equity, was appointed as Chair. Leadership drawn from active market participants helps ensure that ELSA’s policies are grounded in real-world experience and responsive to evolving market conditions.

Understanding Life Settlements and Viatical Settlements

To grasp ELSA’s role, it is essential first to understand what a life settlement is and how it differs from a viatical settlement. Both involve the sale of an existing life insurance policy by its owner, but the circumstances and terminology vary.

A life settlement usually occurs when the owner of a term, whole life, universal life or other permanent policy decides to sell the policy to a third party for more than the insurer’s cash surrender value but less than the policy’s death benefit. This is most common among seniors, typically aged 65 or older, whose policies have a face value of at least around $100,000.

Policyholders may choose a life settlement for several reasons: they might no longer afford premium payments, no longer need the coverage, want to fund long-term care, face increased medical or living expenses, or simply prefer to unlock liquidity tied up in the policy. Instead of letting the policy lapse with no benefit, they receive an immediate cash payment.

A viatical settlement is a specific type of life settlement where the insured is terminally or chronically ill, often with a life expectancy under roughly two years. In these cases, the policy sale provides funds for medical treatment, care costs or other financial needs during the insured’s remaining lifetime.

In some arrangements, transactions can be structured so that the policyholder receives cash today while beneficiaries still receive part of the death benefit after the insured’s passing. Once the transaction closes, however, the original policyholder is no longer responsible for paying premiums, and the new owner assumes all rights and obligations under the policy.

Historical Foundations of the Life Settlement Market

The legal foundation for the secondary market in life insurance dates back more than a century to the landmark U.S. Supreme Court decision in Grigsby v. Russell, 222 U.S. 149 (1911). In this case, the Court confirmed that a life insurance policy is a form of private property that the owner can freely assign or sell.

The case involved Dr. A. H. Grigsby and his patient, John C. Burchard, who could not afford a necessary surgical operation but owned a life insurance policy. Burchard sold the policy to Dr. Grigsby for $100, with Grigsby agreeing to continue paying the premiums. After Burchard’s death, Dr. Grigsby attempted to collect the death benefit, which was challenged by the executor of Burchard’s estate.

The dispute escalated to the Supreme Court, where Justice Oliver Wendell Holmes Jr. articulated the principle that life insurance policies should have the ordinary attributes of property, including the right to be sold to third parties. Holmes argued that restricting assignments only to those with an “insurable interest” would substantially reduce the policy’s value to its owner.

This ruling laid the legal groundwork for both viatical and life settlements, even though these markets did not become widespread until many decades later. The idea that a policy is an asset, not just a contract with the insurer, is fundamental to the current industry structure.

Life settlements remained relatively obscure for much of the twentieth century due to limited awareness among policyholders and a lack of investor interest. It was not until the 1980s, during the AIDS crisis in the United States, that viatical settlements emerged as a meaningful market.

From Viatical Settlements to Modern Life Settlements

The AIDS epidemic of the 1980s created a tragic but powerful impetus for the viatical settlement market. Many early victims were relatively young gay men who often had life insurance through work or investments, but did not have traditional dependants such as spouses or children.

In numerous cases, the designated beneficiaries were parents who did not urgently need the death benefit, while the insured individuals faced high medical and living costs and a short life expectancy due to limited treatment options at the time. Viatical settlements allowed them to convert policies into cash while still alive.

For investors, the extremely high mortality rates and short predicted survival times meant that the expected time to receive the death benefit was relatively brief, which made the investments attractive despite their sensitive nature. As medical treatments improved and life expectancies lengthened, the economics of focusing solely on terminally ill individuals became less compelling.

By the mid-1990s, advances in antiviral therapies had dramatically changed the outlook for people living with HIV/AIDS, causing the original viatical model to shrink. In its place, a broader life settlement market developed, targeting older policyholders with life insurance they no longer needed or wanted.

Today, the mainstream life settlement industry focuses largely on seniors whose policies have substantial face amounts and where a sale can deliver several times more than the surrender value. A small niche market still exists for policies on terminally ill insureds of all ages, but the size of that market is limited for several reasons.

First, the potential pool of terminally ill insureds willing and able to sell policies is relatively small. Second, many insurers now offer accelerated death benefit riders that allow policyholders to receive part of the death benefit while alive if they are terminally ill, reducing the need for a separate settlement transaction.

Regulation and Consumer Protection

As the viatical and life settlement markets grew, U.S. regulators stepped in to provide a framework designed to protect consumers and maintain market integrity. Two key organisations have been especially influential: the National Association of Insurance Commissioners (NAIC) and the National Conference of Insurance Legislators (NCOIL).

In 1993, the NAIC adopted the first Viatical Settlement Model Act, which provided a template for states to regulate transactions involving terminally ill insureds. The term “viatical settlement” typically refers to sales where the insured’s life expectancy is under approximately two years.

The life settlement concept evolved into its own category around the turn of the millennium. In 2000, NCOIL approved the Life Settlements Model Act, and by 2001 the expression “life settlements” was widely used to describe the purchase of policies from senior citizens.

Regulation expanded rapidly: by 2005, about half of U.S. states had specific life settlement laws, often giving seniors an option that yielded more value than simply surrendering their policies to insurers. Subsequent revisions to model acts in 2007 targeted consumer protections and addressed abuses related to STOLI (stranger-originated life insurance), where policies are taken out primarily as speculative investments rather than for genuine insurance needs.

Further consumer-focused regulation followed, including the Life Insurance Consumers Disclosure Model Act adopted by NCOIL in 2010, which aims to ensure policyholders are informed about the possibility of life settlements when considering lapses or surrenders. At present, around 43 U.S. states have laws regulating life settlements, covering roughly 90% of the population.

However, there is still regulatory variation. Some jurisdictions, such as New Mexico and Michigan, primarily regulate viatical settlements but not broader life settlements, while others, like Maryland, use the term “viatical settlement” to cover any form of settlement. A handful of states, including Wyoming, South Dakota, Missouri, Alabama, South Carolina and Washington, D.C., have historically had no dedicated settlement regulation at all.

Industry Associations Beyond ELSA

ELSA is not the only trade association shaping the life settlement and longevity markets ecosystem; globally, several organisations promote standards, advocate for regulation and provide education. In the United States, two of the most notable are the Life Insurance Settlement Association (LISA) and the Institutional Longevity Markets Association (ILMA).

LISA, founded in 1994, is a non-profit association that brings together brokers, providers, investors and other participants. Its mission is to support legislation and regulation that protect consumers and encourage responsible industry growth. LISA also recognises industry leaders through the Alan H. Buerger (AHB) award for industry leadership.

ILMA focuses on the institutional side of the life settlement and broader longevity markets. It acts as a platform for large-scale investors and counterparties interested in longevity-linked assets, helping to define best practices, manage risks and promote standardisation across the asset class.

Together with ELSA in Europe, these associations help regulators, the media and the public better understand how life settlements work and what safeguards are necessary. They also champion the introduction of new products and technologies, encouraging innovation while insisting on ethical standards.

Key Market Participants and How Transactions Work

A life settlement transaction involves several specialist players, each performing a distinct role in moving a policy from its original owner to the ultimate investor. Understanding who these participants are helps clarify how the market functions.

The policyowner (or policyholder) is the individual or entity that owns the life insurance policy and has the right to sell it. The insured is the person whose life is covered by the policy; occasionally, the policyowner and insured are the same person, but in corporate or trust-owned policies, they may differ.

Financial advisers often act as the first point of contact for policyowners considering their options. They may work directly with life settlement providers or choose to involve a life settlement broker, whose job is to shop the policy to multiple providers to secure the most competitive offers.

Life settlement brokers represent the interests of the policyowner, collecting relevant information and circulating it to licensed life settlement providers. These brokers are typically compensated via commissions or fees built into the transaction, and they are expected to act in the best interest of the policy seller.

Life settlement providers are specialised companies, usually licensed by state insurance departments, that purchase policies from policyowners. Providers may hold policies on their own balance sheet or more commonly package pools of policies for sale to institutional investors such as funds, reinsurers or dedicated vehicles.

Institutional investors are the ultimate buyers who bear the longevity and premium risk in exchange for the potential investment return once death benefits are paid. Expected net returns for investors in life settlement portfolios often fall in the range of around 8-10% after fees, reflecting both illiquidity and mortality risk.

The transaction process generally begins when the insured or policyowner submits an application, providing details about the policy and relevant medical information. The provider and/or broker gathers medical records, obtains life expectancy estimates from specialised underwriters and calculates an offer based on projected premiums and the expected time to collect the death benefit.

Once a formal offer is made and accepted, the policyowner receives a closing package with the necessary legal and transfer-of-ownership forms. After everything is signed and the insurer recognises the new owner and beneficiary, the seller receives the agreed cash payment and is relieved of any further premium obligations.

Market Size, Growth and Trends

Despite growing interest, life settlements remain a relatively small segment compared to the overall life insurance market, though the value unlocked for policyholders can be significant. In recent years, annual transaction volumes have involved a few thousand policies with several billion dollars of total face value.

For example, in the year ending 2020, around 3,241 policies with an aggregate face value of approximately $4.6 billion were acquired on the secondary market, up from 2,878 policies and $4.4 billion in 2019. These figures come from industry reports such as the Life Settlement Report by The Deal.

When placed next to the broader insurance universe, these numbers are modest. As of 2018, there were roughly 267 million life insurance policies in force in the United States alone, and an estimated 10 million policies lapse each year without paying a death benefit or generating settlement proceeds.

Academic and industry studies suggest that policyowners frequently receive substantially more from a life settlement than from surrendering their policy. One study found that life settlements can deliver on average about four times what a policyowner would obtain from the insurer’s cash surrender value.

A 2023 industry analysis estimated that policyholders collectively received around $842 million through life settlement transactions, representing about $707 million of incremental value compared with simply letting policies lapse or surrendering them. This gap explains why many observers expect further growth in the market as awareness increases.

Several structural trends are driving change. One is the rising volume of institutional capital flowing into life settlement strategies since the early 2000s, with billions of dollars committed to funds and vehicles focused on longevity risk. Another is the growth of direct-to-consumer marketing by providers and brokers, which allows policyowners to access settlement options without going through traditional financial advisers.

Technological innovation is also reshaping the industry. The use of APIs, dedicated apps and AI-based tools is improving transparency, streamlining underwriting processes and helping policyowners more easily compare options. In parallel, medical underwriting has become more precise thanks to better data from prescription and clinical databases and more sophisticated analytics.

These improvements allow life expectancy providers and investors to estimate mortality more accurately, reducing the risk of large mismatches between expected and actual outcomes. Enhanced duration and convexity analysis helps investors understand how sensitive policy values are to changes in interest rates and life expectancy assumptions.

Valuation and Pricing of Life and Viatical Settlements

Pricing a life settlement or viatical settlement is fundamentally an exercise in assessing life expectancy and discounting projected cash flows to reflect risk and required returns. The two main variables in any valuation model are the insured’s expected remaining lifespan and the internal rate of return (IRR) investors demand.

In practice, life settlements are valued using market-based “fair value” approaches that draw on data from closed transactions. Providers and valuation firms collect information about actual prices, policy characteristics and underwriting assumptions and then use this data to calibrate pricing models.

Actuarial literature describes multiple techniques for valuing settlements, including deterministic models (using fixed inputs), probabilistic models (based on survival curves), stochastic methods (simulating many possible mortality and interest rate paths) and even fuzzy logic approaches. Each method balances complexity, transparency and computational demands.

Sensitivity analysis plays a crucial role in understanding risk. Duration measures how sensitive the present value of a policy pool is to changes in discount rates, while convexity captures the curvature of that relationship. Together, they help investors gauge how settlement portfolios might respond to shifts in interest rates or revised mortality expectations.

The same valuation principles apply to viatical settlements, although the life expectancy horizons are typically shorter and the uncertainty around mortality can be different. In both cases, accurate and unbiased life expectancy estimates are essential, and competition among life expectancy firms has pushed the industry toward more robust analytics.

Tax, Legal and Policy Considerations

Tax treatment is a crucial factor for policyholders deciding whether to enter a life settlement. In the United States, changes introduced by the Tax Cuts and Jobs Act of 2017 clarified how proceeds are taxed.

Generally, the portion of settlement proceeds up to the total premiums the policyowner has paid over time is treated as a tax-free return of basis. Amounts above the basis and up to the policy’s cash surrender value are typically taxed as ordinary income, while proceeds exceeding the surrender value are taxed as capital gains.

There have also been legislative initiatives aimed at further integrating life settlements into financial planning for healthcare costs. The Senior Health Planning Account Act (HR 5958), introduced in 2020 and reintroduced in 2021, proposed to allow seniors to use tax-advantaged proceeds from policy sales to pay medical expenses, although such measures require full legislative approval before taking effect.

Legal and enforcement actions have also shaped market practices. Notorious cases, such as the Mutual Benefits Corporation Ponzi scheme in Florida, where life policies on HIV-positive individuals were sold to thousands of investors, highlighted the potential for abuse and the need for strong oversight. Criminal convictions and long prison sentences for key individuals in such schemes have reinforced the industry’s focus on compliance.

Other legal disputes, such as the Kelco Inc. case involving falsified applications and viatical settlements, further illustrate how misconduct can arise when incentives are misaligned and controls are weak. These episodes have driven regulators and industry bodies, including ELSA and its peers, to push for stricter due diligence, clearer disclosures and robust licensing frameworks.

Evidence from Academic and Industry Research

Over the last two decades, researchers have examined the life settlement market from multiple angles, including consumer welfare, market efficiency and impacts on insurers. Several influential academic papers and industry reports shed light on the benefits and controversies surrounding the asset class.

A 2002 study by Wharton School researchers Neil Doherty and Hal Singer, titled “The Benefits of a Secondary Market for Life Insurance,” concluded that the emergence of life settlements delivered hundreds of millions of dollars in additional value to consumers by enabling them to sell underperforming policies. Before the secondary market existed, lapsed or surrendered policies often generated little or no cash for policyowners.

Another 2002 study looked at hospice financial counsellors’ experiences with viatical settlements and found that, overall, the reported outcomes were largely positive. This suggests that, when properly regulated and disclosed, settlements can play a constructive role in end-of-life financial planning.

A 2016 joint study by the Wharton School and Washington University’s Olin Business School highlighted a striking fact: the majority of life insurance policies never pay a death benefit. Approximately 85% of term policies and 88% of universal life policies analysed in the study failed to result in a death claim, often because they lapsed or were surrendered.

Industry research by firms such as Conning & Co. found that U.S. seniors owned hundreds of billions of dollars in life insurance, with a substantial portion held by individuals who could potentially benefit from life settlements. This underscores the market’s untapped potential.

Not all analyses have been favourable, however. A study sponsored by parts of the life insurance industry and conducted by Deloitte Consulting and the University of Connecticut raised concerns about the impact of life settlements on insurers’ profitability and the possibility of adverse selection, sparking debate about who ultimately gains or loses from a more active secondary market.

More recent industry statistics indicate continued growth. For example, total amounts paid to sellers reached roughly $848 million in 2020, edging up from around $839.6 million the year before, and the number of licensed settlement providers in key states such as California has been increasing. Large providers such as Coventry Direct and Abacus Life have become major buyers, while others, like GWG, have faced bankruptcy and regulatory scrutiny owing to alleged mis-selling of investments to retail investors.

Taken together, these studies and market outcomes reinforce the importance of organisations like ELSA that advocate for transparent, data-driven standards and seek to balance the interests of policyholders, investors, insurers and regulators. As awareness of settlement options expands and underwriting and technology continue to evolve, life settlements and viatical settlements are likely to remain a specialised but increasingly significant corner of global financial markets.

Seen from a broad perspective, the European Life Settlement Association sits at the crossroads of law, finance, insurance and consumer protection, helping to shape a market where life insurance policies are treated as flexible financial assets rather than rigid contracts. Its role in promoting ethical practices, fostering dialogue with regulators and exporting best-in-class standards from Europe to the wider longevity markets makes ELSA a key reference point for anyone interested in how life settlements work and where this distinctive asset class is heading.