The Start of the Secondary Market for Life Insurance.
In Grigsby v. Russell, 222 US 149, the U.S. Supreme Court ruled in 1911 that consumers have the legal right to sell a life insurance policy to a third party. Justice Holmes wrote, “To deny the right to sell except to persons having such an (insurable) interest is to diminish appreciably the value of the contract in the owners’ hands.”
This opinion put the ownership rights in a life insurance policy on an equal footing to a more traditional type of investment, such as bonds, stocks, and real estate. Just as it is with these types of property, a policy owner has the discretion to transfer a life insurance policy to someone else. This decision determined that a life insurance policy is a transferable property that has certain legal rights, including the right to:
- Name the beneficiary of the policy
- Borrow against the policy
- Use the policy as collateral for a loan
- Sell the policy to a third party
- Change the beneficiary designation, unless it is subject to restrictions
While this ruling made it perfectly legal for consumers to trade or sell their life insurance policies, this practice was rarely seen before the late 1980s. This marked the start of the viatical settlement industry, which preceded the life settlement market.
Are life settlements regulated?
The Life Settlement and Viatical industry is highly regulated and require that life settlement brokers and providers (buyers) carry various licenses, depending on the state. In addition to being regulated by the State Department of Insurance, at least 45 states have passed consumer protection laws regarding life settlements, though the laws vary from state-to-state.
How can a life insurance policy have a market value?
Most people are issued a life insurance policy when they are in good overall health. Of course, over time, individuals health status changes, leaving some people with significant health problems. Individuals who have been diagnosed with a life-threatening condition and/ or older Americans are rarely told that their change in health may have created the possibility to sell their life insurance policy in a secondary market for a substantial immediate cash value.
“45 states regulate the selling of a life insurance policy”
The Market For Selling a Life Insurance Policy
The secondary market is a liquid market that Life Settlement Providers maintain. It provides a safe and efficient forum for investors to bid on existing life insurance policies. The Providers facilitate the transaction that transfers the investment capital to the policy owners and further fulfills all the transactional paperwork to shift the ownership of the policy from the current policy owner to the buyer. In the end the policy owner realizes a cash infusion that is dictated by certified life expectancy estimates and the investor receives a fair investment yield that reflects the risk and projected term of the investment.
With the growing need for liquidity in the senior market Life Settlement Providers add a necessary resource for covering growing costs such as long term care and other retirement expenses.
If you are looking for more information on selling your life insurance policy feel free to contact us.
For a quick estimate of your policy value be sure to use our online life settlement calculator.