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Life settlements aren’t a new idea, but they’ve been gaining traction again in 2025. Rising interest rates, longer life expectancies, and a growing secondary market have made them more visible to investors. 

For someone considering this asset class, the big challenge is cutting through the complexity and figuring out which deals—or which managers—are worth trusting.

Below is a practical flow for due diligence, broken down into the areas that matter most.

Mortality Assumptions

Everything in life settlements comes back to how long policyholders are expected to live. If assumptions are too aggressive, returns can evaporate. If they’re too conservative, opportunities get overlooked. When you review a policy or fund, ask what mortality tables they’re using, how often they update them, and whether they stress-test scenarios like medical advances or misreported health conditions.

Carrier Credit Strength

A life settlement is only as strong as the insurance company backing it. Ratings from AM Best, Moody’s, or S&P give you a snapshot, but it’s important to dig deeper. Has the carrier faced recent regulatory issues? How is its claims-paying ability trending? Evaluating the financial health and stability of the insurer helps ensure smoother payouts and reduces the risk of delays.

Premium Reserve Planning

Someone has to keep paying the policy premiums until maturity. That cost can eat into returns if it isn’t planned for. Due diligence here means reviewing the reserve plan: how much cash is set aside, how long it will last under different life expectancy scenarios, and who manages those funds. 

Platforms like Abacus specialize in managing these details, helping investors track reserves, monitor policy performance, and reduce administrative headaches—making it easier to focus on returns rather than paperwork.

Cash Flow Timing

Unlike bonds with fixed coupons, life settlements pay out at uncertain times. That makes cash flow lumpy. 

Look at historical models and ask: what’s the expected payout window? How much variance could there be? Knowing this helps you judge whether life settlements fit with the rest of your portfolio.

Servicing Quality

Policies don’t run themselves. A servicing company tracks premiums, keeps tabs on insureds, and handles claims. Sloppy servicing can mean missed payments or legal headaches. Ask how often insureds are contacted, how information is verified, and how communication is handled with carriers.

Legal Chain of Title

Ownership must be airtight. Every transfer of a policy—from the original policyholder through any brokers to the current holder—needs proper documentation. 

Missing links can invalidate a claim. As part of due diligence, confirm that legal counsel has reviewed the entire chain of title.

Fees and Transparency

Fees vary widely, from acquisition costs to management fees in pooled funds. What matters is transparency. You should know who gets paid, for what, and how much. When selecting a manager, look for clear reporting and openness. 

For example, here’s a public overview of a longevity-focused platform that showcases lifespan-based solutions, technology for tracking policies, and recent performance results—evidence that scale and disclosure can go hand in hand.

Tax Treatment

Tax rules for life settlements can be tricky. Some gains may be taxed as ordinary income, while others may be taxed as capital gains. Treatment also varies depending on whether you hold policies directly or through a fund structure. Talking with a tax advisor before investing isn’t optional—it’s essential.

Liquidity Considerations

Life settlements are illiquid. Once you commit, your capital is tied up until policies mature or until you find a buyer in the secondary market. Some funds offer redemption windows, but they’re not guaranteed. Evaluate how much of your portfolio you can realistically lock up.

Access Paths: Funds vs. Direct Policies

For beginners, funds are the doorway. They bundle a lot of policies, cut down the risk, and save you from chasing paperwork. Direct ownership is possible, but it requires large capital outlays and active management. 

Beginners usually find funds more practical, especially as investors are starting to turn bullish on alternatives.

A Quick Checklist

It helps to keep the key points in front of you. Use this quick checklist as a guide:

• Verify mortality assumptions and stress tests
• Review carrier credit ratings and history
• Confirm premium reserve adequacy
• Map expected payout windows
• Assess the servicing company’s reliability
• Check the legal chain of title
• Understand all fees clearly
• Consult on tax implications
• Accept limited liquidity
• Decide between fund vs. direct exposure

Understand Life Settlements

Evaluating life settlements this year means doing your homework. Miss the details and the deal can sour fast. With the right due diligence—on mortality, carriers, fees, and servicing—you can decide whether this unique corner of the financial world belongs in your portfolio.