Fiduciary Duty in Life Settlements: What Advisors Owe Their Clients

When a client mentions a life insurance policy they no longer need, the conversation that follows carries real weight. Fiduciary duty in life settlements means more than pointing a client toward a buyer. It means making sure the client understands the full range of options and the asset’s true value. It also means weighing the tradeoffs before any decision gets made.

Most advisors already treat equities, real estate, and other portfolio assets with this level of scrutiny. Life insurance, however, often gets filed away and forgotten. That gap has a real cost.

According to LISA’s 2025 market data, the average cash surrender value paid by insurers was $24,360, compared with an average of $212,066 for policies sold on the secondary market. In other words, exploring the market instead of surrendering a policy often means a far better outcome for the client.

Why Fiduciary Duty Matters in Life Settlement Conversations

Life settlements sit at an unusual intersection, since they involve insurance, financial planning, and estate strategy all at once. Because of this overlap, the fiduciary duty an advisor carries often exceeds what a typical insurance transaction requires.

To see why this matters, consider a hypothetical planning scenario. A senior client holds a $1 million universal life policy originally purchased for estate liquidity. The client no longer needs the coverage and wants to stop paying premiums.

• Path A (Lapse): The policy terminates. The client receives $0.
• Path B (Surrender): The carrier pays a contractual cash surrender value of $50,000.
• Path C (Secondary Market Sale): A competitive auction among institutional buyers yields offers of $150,000, $220,000, and $300,000, with the policy ultimately selling for $300,000.

In this scenario, surrendering the policy leaves $250,000 on the table, a sum that could otherwise fund healthcare, extend retirement savings, or support family goals. Past surveys have shown that roughly 90% of seniors who let a policy lapse would have considered selling it had they known it was an option. That gap is exactly where an advisor can add the most value, by raising the option before the client acts rather than after. If a client, family member, or compliance reviewer later asks why a secondary sale wasn’t explored, wanting to stop paying premiums isn’t a complete answer.

Over-the-Counter Price Discovery

Unlike the open exchanges of equity markets, the life settlement market operates on an over-the-counter basis. Institutional buyers price the same policy very differently, since each fund works under its own underwriting guidelines and yield targets. A fund focused on shorter life expectancies might bid conservatively, or skip the policy altogether. A buyer already holding significant exposure to that carrier, meanwhile, will likely price low no matter how strong the policy otherwise looks. A fund whose buy box happens to fit the case well, on the other hand, could offer substantially more than either of them.

Because mandates vary this much, the same policy shopped to several buyers can produce wildly different numbers. Accepting a single off-market offer leaves that gap unexamined, and closing it is exactly what fiduciary duty in this context requires.

Therefore, the real question isn’t just whether a settlement happened. Instead, it’s whether the client had enough information to make a fully informed choice, and whether the advisor treated the transaction with the diligence any other financial decision deserves. Ultimately, the gap between what a client receives and what a policy is actually worth can be very significant.

What Fiduciary Duty Looks Like in Practice

Fiduciary duty isn’t an abstract principle. It shows up in specific, repeatable actions an advisor takes throughout the process.

• Disclosure obligations. Clients need to understand how the market values their policy, what fees apply, and how the broker gets compensated. Additionally, advisors should disclose any relationships that could create a conflict, including referral arrangements with a single buyer.
• Evaluating multiple offers. A single quote isn’t a market, however. Competitive bidding through a broker with access to multiple buyers gives the client a clearer picture of true value.
• Documenting the process. A clear paper trail protects both the client and the advisor. It should record which offers were reviewed, what was disclosed, and why the client chose that path.

Taken together, disclosure, competition, and documentation aren’t a compliance checklist so much as a description of what careful advice already looks like. If a family member, client, or regulator ever asks why a particular path was chosen, these are three things that make the answer defensible.

Common Pitfalls That Create Fiduciary Risk

Even advisors trying to meet their fiduciary duty can drift into risk without realizing it, because a few patterns show up repeatedly. The costliest is staying silent on the option entirely, especially now that direct-to-consumer advertising means clients are increasingly likely to hear about life settlements from a television ad before they hear it from their own advisor. A client left uninformed doesn’t just miss out passively; they may let a valuable policy lapse for nothing, or end up approached directly by a buyer with no advisor involved to negotiate on their behalf. Even once that conversation happens, treating the first offer as the only offer creates a similar problem: without a competitive process, there’s no way to confirm the client received fair value, and a single quote can look reasonable in isolation while still leaving significant money on the table.

Other gaps show up further into the process. Advisors sometimes skip the eligibility conversation entirely, usually because a client’s health status is assumed to disqualify them, when in reality product design and policy structure matter more these days. Working without input from the client’s other advisors can create friction later, since CPAs and estate planning attorneys often bring context, particularly around tax treatment, that shapes whether a settlement makes sense at all. And underestimating the time sensitivity of a policy near its premium due date can cost the client real leverage once the process starts too late, since buyers price urgency into their offers just as much as they price the policy itself.

A Practical Checklist for Advisors

Advisors who want to meet their fiduciary duty with a defensible, client-first process can use the following as a starting point.

1. Raise the option proactively during routine reviews, rather than waiting for a client to bring up an unwanted policy.
2. Confirm eligibility factors beyond health status, including policy type, carrier, and face amount.
3. Request competitive bids rather than accepting a single offer at face value.
4. Document every disclosure, including fees, compensation structure, and any relationships with buyers.
5. Loop in the client’s other advisors when tax or estate implications are involved.
6. Set a timeline that accounts for premium due dates and policy lapse risk.

State regulations governing life settlement disclosure and licensing vary considerably. Because of this, advisors working across multiple states should understand how requirements differ by client location.

Where This Leaves Advisors

Fiduciary duty in life settlements comes down to one thing. Advisors should bring the same structure and diligence to this asset that they already apply elsewhere in a client’s portfolio. Clients deserve a process built on competitive offers, clear disclosure, and coordination with their broader professional team.

When that happens, the numbers speak for themselves. A policy worth exploring gets explored, a competitive process replaces a single guess, and there’s a clear record of how the client landed where they did.

Timing matters, too. Clients increasingly hear about life settlements from direct advertising, sometimes before their own advisor ever raises it. The only real choice an advisor has is whether they’re the one explaining the option, or whether someone with no obligation to the client gets there first.

If you have a client situation worth a closer look, Evergreen works directly with advisors to evaluate secondary market options and run a competitive process across a broad network of institutional buyers.