How did the secondary market for life insurance begin?

May 19, 2016
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Early beginnings

The beginning of the life industry dates back to 1911. One Supreme Court case, known as Grigsby versus Russell, established what we know today as the secondary insurance market.

This Supreme Court case lay the foundation for the explosion in the secondary insurance markets that we see today. This case named a life insurance policy as an asset, one that is able to bought, sold, and transferred just like any other asset. This ruling, though it occurred more than a century ago, allowed the life insurance policyholder to be in charge of all decisions in regard to the life insurance policy.

Effects of the ruling

Further effects of the Grigsby versus Russell ruling include the policyholder’s ability to assign and change the policy’s beneficiary as well as using the policy as collateral for a loan. Other abilities include the ability to borrow against the policy and selling the policy.

Beginning of an industry

The 1980’s was the decade that saw a drastic increase in the life settlement industry. This was due to the AIDS epidemic. Some victims of this disease had a relatively short life expectancy at this time. Therefore, some did not need their life insurance policies.

Unfortunately, many insurance companies did not cover the treatments these victims sought, so they would sell their policies to get the money for the treatments.

As those with AIDS began to live longer lives because of medical advances, the selling of policies gradually decreased; in addition, the life settlement industry emerged during this time.

Improvements to the industry

The government began initiating guidelines for the life settlement in about 2001, as the life settlement industry experienced a rebirth of sorts. These guidelines sought to ensure that the sellers of the life insurance policies and the buyers of the life insurance policies maintained ethical guidelines and business practices. Since then, many more consumer protections have been initiated throughout the country.

Also during the early 2000’s, investors took notice of life settlements as wise investments. This new method of investing was a great tool to diversify their portfolios.

The life settlement advantage

The United States Senate Special Committee on Aging conducted a study in 2009. The results showed that life settlements, on average, result in eight times more money to the policyholder than accepting the cash surrender value of the policy. This means when policyholders are no longer in need of their policy, a life settlement may be the most beneficial financial option.

If you currently own a life insurance policy that you no longer need or want, contact us. We offer a complimentary evaluation of your policy.

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