Measuring the Performance of the Secondary Market for Life Insurance Policies

25 Pages Posted: 6 Feb 2017

See all articles by Carmelo Giaccotto

Carmelo Giaccotto

University of Connecticut - Department of Finance

Joseph H. Golec

University of Connecticut - Department of Finance

Bryan Schmutz

Western New England University - School of Business

Date Written: March 2017

Abstract

We construct an index of life insurance policies purchased in the secondary market by viatical and life settlement companies. Using the repeat sales method to measure returns over our 1993–2009 sample period, we find that policy returns average about 8 percent annually compared to 5.5 percent for the S&P 500 and 7 percent for corporate bonds, but they are twice as volatile as the S&P and four times as volatile as bonds. Nevertheless, because the index return is relatively uncorrelated with stock or bond returns, life insurance policies make attractive additions to well‐diversified portfolios.

Suggested Citation

Giaccotto, Carmelo and Golec, Joseph and Schmutz, Bryan, Measuring the Performance of the Secondary Market for Life Insurance Policies (March 2017). Journal of Risk and Insurance, Vol. 84, Issue 1, pp. 127-151, 2017, Available at SSRN: https://ssrn.com/abstract=2911348 or http://dx.doi.org/10.1111/jori.12078

Carmelo Giaccotto (Contact Author)

University of Connecticut - Department of Finance ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States
202-486-4360 (Phone)
202-486-0349 (Fax)

Joseph Golec

University of Connecticut - Department of Finance ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States

Bryan Schmutz

Western New England University - School of Business ( email )

United States

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