Although the secondary market for life insurance is relatively new, the market was more the 100 years in the making. The life settlement market would not have originated without a number of events, judicial rulings, and key individuals.
The Policy as Transferable Property
The Supreme Court case of Grigsby v. Russell (1911) established the policyowner’s right to transfer an insurance policy. Justice Oliver Wendell Holmes noted in his opinion that life insurance possessed all the ordinary characteristics of property, and therefore represented an asset that a policyowner could transfer without limitation. Wrote Holmes, “Life insurance has become in our days one of the best recognized forms of investment and self-compelled saving.” This opinion placed the ownership rights in a life insurance policy on the same legal footing as more traditional investment property such as stocks and bonds. As with these other types of property, a life insurance policy could be transferred to another person at the discretion of the policyowner.
This decision established a life insurance policy as transferable property that contains specific legal rights, including the right to:
* Name the policy beneficiary
* Change the beneficiary designation (unless subject to restrictions)
* Assign the policy as collateral for a loan
* Borrow against the policy
* Sell the policy to another party
A second milestone occurred in 2001 when The National Association of Insurance Commissioners (NAIC) took a crucial step by releasing the Viatical Settlements Model Act defining guidelines for avoiding fraud and ensuring sound business practices. Around this time, many of the life settlement providers that are prominent today began purchasing policies for their investment portfolio using institutional capital. The arrival of well-funded corporate entities transformed the settlement concept into a regulated wealth management tool for high-net-worth policyowners who no longer needed a given policy. Strong demand for life settlements policies is driving a rapid market expansion that continues today.
alt="Dj-Mails.com">Major Study Findings
One major study that showed some of the potential of the life settlement market was conducted by the University of Pennsylvania business school, the Wharton School. The research papers, credited to Neil Doherty and Hal Singer, were released under the title "The Benefits of a Secondary Market For Life Insurance." ([1]) This study found, among other things, that life settlement providers paid approximately $340 million to consumers for their underperforming life insurance policies, an opportunity that was not available to them just a few years before.
"We estimate that life settlements, alone, generate surplus benefits in excess of $240 million annually for life insurance policyholders who have exercised their option to sell their policies at a competitive rate." - Wharton Study, pg 6
Another study, perhaps even more influential, was the Conning & Co. Research study "Life Settlements: Additional Pressure on Life Profits." This study found that senior citizens owned approximately $500 billion worth of life insurance in 2003, of which $100 billion was owned by seniors eligible for life settlements. Since 2003, more and more of these eligible senior clients have sold their policies and helped the market increase.
Other Life Settlement Fast Fent Providers - 34
o Estimated Amount of life policies to be purchased by providers in 2005 - $10-15 billion
- From the Maple Life Financial Industry Outlook 2005
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