How Does Life Settlement Affect the Primary Life Insurance Market?

Hanming Fang and Edward Kung

No 15761, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study the effect of the life settlement market on the structure of long term contracts offered by the primary market for life insurance, as well as the effect on consumer welfare, using a dynamic model of life insurance with one sided commitment and bequest-driven lapsation. We show that the presence of life settlement affects the extent as well as the form of dynamic reclassification risk insurance in the equilibrium of the primary insurance market, and that the settlement market generally leads to lower consumer welfare. We also examine the primary insurers' response to the settlement market when they can offer enriched contracts by specifying optimally chosen cash surrender values (CSVs).

JEL-codes: G22 L11 (search for similar items in EconPapers)
Date: 2010-02
New Economics Papers: this item is included in nep-ias and nep-rmg
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Working Paper: How Does Life Settlement Affect the Primary Life Insurance Market? (2010)
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