How The Life Settlement Secondary Market was Created

Take a look what wikipedia state about the history of the secondary market :

Although the secondary market for life insurance is relatively new, the market was more than 100 years in the making. The life settlement market would not have originated without a number of events, judicial rulings, and key individuals.

The Policy as Transferable Property

The Supreme Court case of Grigsby v. Russell (1911) established the policyowner’s right to transfer an insurance policy. Justice Oliver Wendell Holmes noted in his opinion that life insurance possessed all the ordinary characteristics of property, and therefore represented an asset that a policyowner could transfer without limitation. Wrote Holmes, “Life insurance has become in our days one of the best recognized forms of investment and self-compelled saving.” This opinion placed the ownership rights in a life insurance policy on the same legal footing as more traditional investment property such as stocks and bonds. As with these other types of property, a life insurance policy could be transferred to another person at the discretion of the policyowner.

This decision established a life insurance policy as transferable property that contains specific legal rights, including the right to:

• Name the policy beneficiary
• Change the beneficiary designation (unless subject to restrictions)
• Assign the policy as collateral for a loan
• Borrow against the policy
• Sell the policy to another party

A second milestone occurred in 2001 when The National Association of Insurance Commissioners (NAIC) took a crucial step by releasing the Viatical Settlements Model Act defining guidelines for avoiding fraud and ensuring sound business practices. Around this time, many of the life settlement providers that are prominent today began purchasing policies for their investment portfolio using institutional capital. The arrival of well-funded corporate entities transformed the settlement concept into a regulated wealth management tool for high-net-worth policyowners who no longer needed a given policy. Strong demand for life settlements policies is driving a rapid market expansion that continues today.

The year where this market started to take action was 1980 when the AIDS crisis began to expand in a scary rate, which cause an immediately necessary to those that owned a life insurance policy a fast way to get funds for special medical treatment to them or relatives that were infected with this fatal decease. Since then a complete secondary market has been operating for the purpose of buy/sell of life insurance policies.