tag:blogger.com,1999:blog-5974073209592787155.post7882111125246350881..comments2023-11-02T04:26:26.052-07:00Comments on Market Failure: Supply and Demand: Investing in DeathUnknownnoreply@blogger.comBlogger5125tag:blogger.com,1999:blog-5974073209592787155.post-28068506167942577812006-12-18T07:19:00.000-08:002006-12-18T07:19:00.000-08:00I don't where the insurance companies are being ta...I don't where the insurance companies are being taken advantage of here. If it turns out they were mispricing the policies, they would find this out by doing a current actuarial analysis anyway, and probably already knew.<br /><br />It's far more likely that speculators are taking advantage of the fact that insurance companies and policyholders are otherwise locked into a plan that doesn't make as much sense for one or the other now as when it was written.<br /><br />If someone is in very poor health, much poorer than the IC expected them to be at this age when they wrote the policy, the insurance is worth much more to the policyholder. Of course, if the insurance company did it's analysis correctly, there will be other insureds whose policies are worth much *less*. Only those whose policies are worth more will be bought at par or above by speculators.<br /><br />Other insureds may not have an above par value policy but have found that their circumstances have changed significantly. They may have decided on WL/UL in their 50s when they were fairly well-off to make sure their starving writer daughter would have a nest egg when they died. But then medical costs or poor investment performance has reduced their wealth greatly, and the starving writer wrote a bestseller or got a tenured academic job and doesn't need their money anymore. Now it might make sense to take a lump sum worth 80% of the PV of the contract to have some money now while they can still enjoy it.<br /><br />I imagine that situations like this occur all the time. Not being able to sell your position to a speculator who prefers it when you no longer do is generally a deadweight loss (for those who would sell at the market price). It doesn't cost the insurance company anything for the insured to sell these.The Gnome of Zurichhttps://www.blogger.com/profile/03203965173625552516noreply@blogger.comtag:blogger.com,1999:blog-5974073209592787155.post-34971038916506431052006-12-18T07:18:00.000-08:002006-12-18T07:18:00.000-08:00Here's something y'all may not know: some life ins...Here's something y'all may not know: some life insurance lines of business are lapse-supported, meaning that the fact that some people stop paying premiums and let the policy lapse means that you've got some policies that pay premiums and never pay a death benefit.<br /><br />However, if some outside group comes in and pays premiums for people who would otherwise have let premium payments lapse...yes, the contracts are underpriced.<br /><br />Another way they can be underpriced is if they're underwritten using variables that do not fully capture the mortality risk for the given insuree.meephttps://www.blogger.com/profile/08893035949118989768noreply@blogger.comtag:blogger.com,1999:blog-5974073209592787155.post-12825200659259312082006-12-18T06:53:00.000-08:002006-12-18T06:53:00.000-08:00Yeah, it's clearly some kind of irrevocable contra...Yeah, it's clearly some kind of irrevocable contract with premiums fixed at the start like whole life insurance here. You don't absolutely need level premiums like in some insurance, you just need insurance whose premiums were fixed at the time of issuance. Once your health takes a turn for the worse, your expected value of the insurance policy should become positive.<br /><br />(Note also that you've been paying in premiums for as long as the policy has been issued. Over the entire term of the policy, your expected value is negative, but starting for a certain point later, the expected value of the remainder can become positive at some point, particularly with whole life.)John Thackerhttps://www.blogger.com/profile/15269867695937765049noreply@blogger.comtag:blogger.com,1999:blog-5974073209592787155.post-69626379435597751072006-12-18T06:33:00.000-08:002006-12-18T06:33:00.000-08:00There are two cases where becoming the beneficiary...There are two cases where becoming the beneficiary and making the premium payments can be a good idea.<br /><br />In level term insurance and whole life insurance, in return for overpaying near the beginning of the contract you get to underpay [but not by as much] near the end.<br /><br />If your health takes a severe turn for the worse you can be underpaying given your then-current health. The canonical example of this is "viatical settlements" for AIDS patients who had gotten life insurance before they got sick in the early 1990s.<br /><br />-dkDick Kinghttps://www.blogger.com/profile/00771805546217083146noreply@blogger.comtag:blogger.com,1999:blog-5974073209592787155.post-42320204702589310172006-12-18T06:31:00.000-08:002006-12-18T06:31:00.000-08:00Although the investors are accepting the burden of...Although the investors are accepting the burden of future payments, they are not "paying to be the insuree" They make a cost-benefit analysis, using a combination of life expectancy reports and requirement of future payment, against the payout. The initial insuree will always be the insuree. They are paying to be the beneficiary.shmuelhttps://www.blogger.com/profile/16252722423994931927noreply@blogger.com