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File name: SSRN-id1550919. ; Size: 726K
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How Does Life Settlement Affect the Primary Life Insurance
Market?
Hanming Fang
University of Pennsylvania - Department of Economics; National Bureau of Economic Research (NBER)
Edward Kung
Duke University - Department of Economics
February 9, 2010
PIER Working Paper No. 10-006
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).
Number of Pages in PDF File: 46
Keywords: Life insurance, dynamic insurance, secondary market
JEL Classification: G22, L11
working papers series
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Date posted: February 11, 2010
Suggested CitationFang, Hanming and Kung, Edward, How Does Life Settlement Affect the Primary Life Insurance
Market? (February 9, 2010). PIER Working Paper No. 10-006. Available at SSRN: http://ssrn.com/abstract=1550919 or http://dx.doi.org/10.2139/ssrn.1550919
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