The History of Selling a Life Insurance Policy

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 transferrable 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.

selling life insurance policy