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

by Neeraj Sood

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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


  • 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

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