Life Insurance Secondary Market

Banks and institutional investment firms have now realized the value in acquiring and holding life insurance policies. A recent Wall Street Journal article places the secondary life insurance market at over $2 billion a year and growing at an estimated rate of 20% annually. As a result, financial and insurance professionals can access the secondary insurance market using an established system to perform insurance valuations. An industry study conducted in 2002 at the University of Pennsylvania’s Wharton Business School found that life insurance policies sold in the secondary market for an average of 3.6 times the policy’s (cash) surrender value. Now professionals can offer more favorable options than surrendering a policy, lapsing coverage, or continuing on with burdensome premium payments. Two recent examples illustrate this point. A 77 year old gentleman had an $8.7 million life insurance policy with a $993,714 cash surrender value and could no longer comfortably meet the premium payments of $36,074 annually. His advisor helped him obtain a life insurance valuation which resulted in an offer of $2,600,000; a total of $1,606,286 above his current surrender value.

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