Life Settlement Article

Life Settlement Market

A Free Market for Life Insurance

Life insurance provides financial solutions to meet various needs of businesses and families. Over time, however, needs change. For example:

• loans are repaid
• key executives retire
• estates become smaller
• businesses are sold
• estate taxes are reduced — or better yet, no longer exist
• the policy becomes too expensive

Until several years ago, these individuals were facing a monopsony, a market situation in which a seller can only sell to one buyer. Imagine if a homeowner, after living in the home for many years, was told that instead of being permitted to sell the home to any willing buyer, he or she could only sell it back to the original builder at the price determined by the builder. Clearly, no one would tolerate such a situation for homeowners, but it has existed for life insurance policyowners. For many years, policyowners have had only one buyer for their policies — the life insurers. The advent of a secondary market has lessened the monopsony power of life insurers and created a free market for policyowners to value their insurance.

Before the advent of the secondary market, life insurance policies could not readily be sold, and it would have made little sense to speak of a policy’s fair market value. By its very existence, this new and growing secondary market for life insurance bestows on every policy a fair market value like the owner’s other financial assets.

Source: Associated Press

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