The life settlement industry has matured dramatically over the past few decades. What was once a largely unknown financial tool has now become a viable and often lucrative option for policyowners looking to monetize their unwanted or unneeded life insurance policies. However, as life settlements have become more mainstream, many policyowners, financial professionals, and even life insurance agents find themselves asking: Are life settlements regulated?
The short answer is yes—life settlements are regulated in the majority of U.S. states, and this regulation has helped protect consumers, standardize processes, and enhance transparency across the industry. In this article, we’ll break down what those regulations look like, how they came to be, how life settlements function in both regulated and unregulated states, and why working with a licensed professional is essential to achieving the best outcome in the life settlement market.
The Regulatory Landscape: 43 States and Counting
As of today, life settlements are regulated in 43 U.S. states, covering over 90% of the population. This is a major milestone for an industry that just a few decades ago operated in a relatively unstructured environment.
This level of regulatory adoption didn’t happen overnight. In fact, most state-level regulations emerged between 2000 and 2010, a direct result of growing awareness around the need to protect consumers who were selling their life insurance policies. Much of this regulatory framework stems from efforts initiated by the National Association of Insurance Commissioners (NAIC), which developed the Life Settlements Model Act—a comprehensive guideline that many states adapted to their specific regulatory codes.
The Model Act focused on consumer disclosures, licensing requirements, and the fiduciary duty of those involved in life settlements—particularly brokers and providers. By the early 2010s, the model had been widely adopted or adapted, creating a strong foundation for regulatory oversight throughout the majority of the country.
The Role of Regulation in Consumer Protection
You might be wondering why regulation is such a big deal in the life settlement space. After all, can’t people just sell their life insurance policies on the open market like any other asset?
While the premise is simple, the process is complex. A life insurance policy is a unique financial asset that requires thoughtful valuation, medical underwriting, and a multi-step transaction process that includes legal and financial disclosures. Without regulation, the door would be wide open for bad actors to exploit vulnerable seniors or misrepresent the value of their policies.
That’s why today’s regulatory environment includes protections such as:
- Required licensing for brokers and providers
- Standardized documentation and disclosures
- Fiduciary obligations for brokers to act in the policyowner’s best interest
- Department of Insurance approval for forms and procedures
- Transparency regarding policy value and offers
These safeguards don’t just protect the consumer—they also add credibility to the entire industry, giving confidence to financial advisors, estate planners, and insurance agents who may refer their clients to explore a life settlement.
Licensed to Serve: Brokers vs. Providers
Within regulated states, there are two primary types of licenses that professionals must hold to participate in the life settlement process:
1. Life Settlement Brokers
These professionals represent the policyowner, also known as the seller. Their fiduciary duty is to act in the best interests of the individual who owns the life insurance policy. A good broker will:
- Solicit multiple offers from a network of licensed life settlement providers
- Help the policyowner understand the value of their policy
- Disclose all offers and terms in a transparent manner
- Ensure that the process follows the regulatory requirements of their state
In other words, a broker works like a real estate agent—except instead of selling your home, they’re helping you sell your life insurance policy for its maximum fair market value.
2. Life Settlement Providers
These entities represent the buyers—typically institutional investors, hedge funds, or other financial groups who purchase policies as part of their investment strategy. Providers are the ones submitting offers to brokers on behalf of their investors. They must also be licensed and comply with all documentation and reporting requirements established by each state in which they operate.
Business Boundaries: State-by-State Licensing
One of the more unique aspects of the life settlement industry is that it’s regulated at the state level—not federally. This means that every business or individual wishing to engage in life settlements must be licensed in each respective state where they intend to operate. A provider licensed in California cannot simply conduct settlements in New York without being separately licensed there, and the same goes for brokers.
This multi-jurisdictional structure ensures that regulators maintain oversight of activity within their own borders. It also encourages accountability from all parties involved. While this may sound like a burden for industry professionals, it ultimately adds to the legitimacy of the space.
Many states also maintain a public registry of licensed brokers and providers, allowing consumers to verify credentials and choose their representatives with greater confidence.
Unregulated States: What You Should Know
While 43 states have adopted some form of life settlement regulation, seven states currently remain unregulated. That doesn’t mean you can’t conduct a life settlement there—it simply means that the state hasn’t enacted its own set of laws or licensing requirements specific to life settlements.
In practice, however, the documents and procedures used in these unregulated states often mirror those required in regulated states. That’s because many life settlement brokers and providers, especially those operating across multiple states, adhere to high internal compliance standards regardless of the legal minimums.
The absence of formal state oversight doesn’t mean consumers are without protection—it just means they need to be extra cautious about who they work with. In these states, it becomes even more critical to partner with a seasoned, licensed life settlement broker who operates with the same level of transparency and care that would be required in regulated jurisdictions.
Standardized Documentation and Department Approvals
Thanks to regulation, many states now provide specific formats and templates for the documents used in life settlement transactions. These may include:
- Seller disclosures
- Medical release forms
- Transfer of ownership agreements
- Escrow instructions
- Acknowledgment of offer and acceptance
In regulated states, these documents must often be submitted to and approved by the Department of Insurance before they can be used. This ensures that the language is clear, fair, and compliant with the law. It also prevents deceptive clauses or misleading terms from making their way into contracts.
This added layer of approval has helped further establish a level of professionalism and transparency in the industry that benefits both consumers and advisors alike.
Why Regulation Benefits Advisors and Clients
Regulation doesn’t just protect the individual selling their life insurance policy—it also provides peace of mind to financial advisors, estate planners, insurance agents, and fiduciaries who refer clients to the life settlement market.
By working within a regulated framework:
- Advisors can fulfill their duty to explore all options on behalf of their clients
- Documentation is standardized, reducing liability and confusion
- The valuation process is more credible, which builds trust
- Transactions are monitored, which reduces the risk of fraud or misconduct
For professionals who are concerned about their compliance obligations, partnering with a licensed life settlement broker is the safest and smartest approach. The broker handles the heavy lifting, ensures all regulatory boxes are checked, and keeps the advisor informed every step of the way.
The Importance of a Licensed Broker
Perhaps the most important takeaway from the current regulatory environment is this: A seasoned, licensed life settlement broker can dramatically improve the policyowner’s experience and outcome.
Here’s how:
- They shop the policy to multiple licensed providers, creating competition and driving up the final offer.
- They protect the client by acting as a fiduciary, providing full disclosure of all offers and terms.
- They ensure compliance with state laws, documentation requirements, and deadlines.
- They provide guidance throughout the entire process—from gathering medical records to closing the sale.
Without a broker, policyowners may be tempted to accept the first offer they receive—often at a discount to the policy’s real market value. In regulated states, a broker is usually required to be involved, but even in unregulated states, choosing to work with a broker can lead to significantly better outcomes.
Final Thoughts: A Mature Industry Backed by Regulation
It’s no longer the Wild West in the world of life settlements. With 43 states regulating the process, clear licensing requirements, and standardized documentation, the industry has matured into a viable financial solution for policyowners looking to unlock the value of their life insurance.
Regulation has brought transparency, accountability, and structure—benefiting consumers, advisors, and investors alike. Whether you’re in a regulated or unregulated state, the most important step you can take is to work with a trusted, licensed life settlement broker who can advocate for your best interests and navigate the complexities of the process with confidence and care.
If you’re a financial advisor, insurance professional, or policy owner exploring whether a life settlement is right for you, now is the time to learn more. A regulated market means more protection, more options, and more potential value—when you know where to look and who to trust.