Assignment of a life insurance policy – 7

Secondary market for life insurance

A life insurance contract, in reality, is purchased by the insurer at full price on maturity. On lapsing of a policy without acquiring paid up value the insurer gives zero price for the contract. When a policy is surrendered the insurer gives a price lower than the actual value and acquires the contract.

Assume that the paid up value of a policy is Rs.100. And the insurer gives a surrender value of Rs.37 to the customer. Now you can offer Rs.40 and acquire the policy through an absolute assignment. You can wait till maturity to receive Rs.100 or assign it to some one else for Rs.45 making a gain in the process. But the customer gets 3% more while surrendering the policy. This creates a secondary market for sale of life insurance policy, the first market being the insurer himself. This helps trading of life insurance policy, just like a debenture or bond. The customer can assign his policy to that person who offers the highest surrender value. For the assignor it offers a higher surrender value. For the assignee it provides better return on his investment.

What is to be remembered here is – in debenture or bond transfer no life risk is involved. In life insurance policy life risk of the life assured is involved.

An analysis of secondary markets in life insurance is available in my paper on the subject published in the journal of the National Insurance Academy. 

Key words:

Assignment

Assignor

Assignee

Secondary market in life insurance