How Does Life Settlement Affect the Primary Life Insurance Market? / Hanming Fang, Edward Kung.

Format:

Book

Author/Creator:

Fang, Hanming.

Contributor:

National Bureau of Economic Research.

Kung, Edward.

Series:

Working Paper Series (National Bureau of Economic Research) no. w15761.

NBER working paper series no. w15761

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2010.

Summary:

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).

Notes:

Print version record

February 2010.