Our Take on the Secondary Market for Life Insurance
Consumers get more choice, and we don't think insurers will take a big hit.
Imagine a world where we had to sell our car back to the original dealer, or our house back to the developer, or even stocks to the original seller. This would be a world without secondary markets. It's the world that most life-insurance policyholders have faced historically. But the life settlement market is becoming increasingly fashionable as investors attempt to capitalize on what they deem to be a "mispriced" niche in the life insurance market.
The viatical industry emerged in the late 1980s as the AIDS epidemic took hold and patients needed to finance expensive medical treatments. Terminally ill policyholders sold their life insurance policies to viatical firms for more than their cash surrender value but less than their death benefit. The viatical market morphed into the life settlement market in the late 1990s when AIDS/HIV patients began living longer. In the past several years, an influx of institutional sources of capital has expanded the life settlement market considerably.
Dafina Dunmore does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.