The payment of life insurance policy benefits to the insured’s suriving spouse or child is something with which most people are both familiar and comfortable. However, when those benefits are instead paid to a third party investor who has no interest in the insured’s life, some people cry foul. Yet this is the basic premise of the secondary market for life insurance. In this market, insured individuals assign their policy benefits to an investor who agrees to pay the insured a lump sum of money in addition to assuming responsibility for the policy’s premiums.
While the underlying concepts that support the secondary market for life insurance policies are not new, the young and imperfectly regulated market has been strained by an increase in supply and demand for these products. Because of the limited guidance within the market, fraud and uncertainty have pervaded many transactions. As a result, many validly settled policies may face challenges in the courts.
In an effort to help stabilize and legitimize the secondary market, this Comment recommends coupling a strict judicial interpretation of the incontestability periods contained in many life insurance policies with a five year holding period on newly issued life insurance policies. This framework will help deter fraudulent transactions while promoting certainty among investors.
Michael G. Koutnik,
Long Live Life Settlements: The Current Status and Proposed Direction of the Life Settlement Market,
96 Marq. L. Rev. 913
Available at: http://scholarship.law.marquette.edu/mulr/vol96/iss3/6