Cashing Out Life Insurance: An Analysis of the Viatical Settlements Market

by Neeraj Sood

Download eBook for Free

Full Document

FormatFile SizeNotes
PDF file 0.8 MB

Use Adobe Acrobat Reader version 10 or higher for the best experience.

Summary Only

FormatFile SizeNotes
PDF file 0.1 MB

Use Adobe Acrobat Reader version 10 or higher for the best experience.

People near the end of their lives are too frail to work, have low incomes and often lack health insurance coverage. Consequently, these people are often under extreme financial stress. They need immediate cash to buy life-saving treatments and but do not have enough income or liquid assets to pay mounting prescription and doctor bills. Such people are increasingly using a new financial vehicle called a viatical settlement, which allow policyholders to convert their previously nonliquid life insurance policies into cash at a discount to the policies' face value. This dissertation reports the results of separate analyses of the viatical settlement market, using a unique database of viatical settlements involving HIV positive patients The first analysis evaluates the impact of existing minimum price regulations in the viatical settlements market. These price floors are perhaps the most controversial of the current regulations, thus a good candidate for analysis. The second analysis evaluates consumer decisions in the viatical settlement market. The empirical evidence from the second analysis is consistent with two hypotheses motivated by the psychology and behavioral economics literature: Relatively unhealthy consumers are too optimistic about their mortality risks, and consumers tend to focus on nominal prices rather than on real discounted expected price.

Table of Contents

  • Chapter One

    Introduction and Research Questions

  • Chapter Two

    Literature Review

  • Chapter Three

    Data

  • Chapter Four

    Price Regulation of Viatical Settlements

  • Chapter Five

    Consumer Decisions in the Viatical Settlements Market

  • Chapter Six

    Conclusions and Policy Implications

  • Appendix A

    Computing Hazard Ratios

  • Appendix B

    Obtaining Closed Form Solutions

  • Appendix C

    Computing Comparative Statics

Research conducted by

This report is part of the RAND Corporation dissertation series. Pardee RAND dissertations are produced by graduate fellows of the Pardee RAND Graduate School, the world's leading producer of Ph.D.'s in policy analysis. The dissertations are supervised, reviewed, and approved by a Pardee RAND faculty committee overseeing each dissertation.

Permission is given to duplicate this electronic document for personal use only, as long as it is unaltered and complete. Copies may not be duplicated for commercial purposes. Unauthorized posting of RAND PDFs to a non-RAND Web site is prohibited. RAND PDFs are protected under copyright law. For information on reprint and linking permissions, please visit the RAND Permissions page.

The RAND Corporation is a nonprofit institution that helps improve policy and decisionmaking through research and analysis. RAND's publications do not necessarily reflect the opinions of its research clients and sponsors.