Supply-side factors

There are a number of reasons why an individual may decide to sell a life insurance policy:

  • The premiums on the policy are no longer affordable

  • The original beneficiary is deceased or no longer needs the policy
  • A key-man policy, designed to protect a company from the financial loss of a key executive, is no longer necessary, either because the business has folded or the individual has left the company
  • The policyholder owns several life insurance policies and wishes to eliminate one
  • The policyholder wishes to replace an individual policy with a survivorship or long-term care insurance policy
  • The policyholder requires funds to pay for medical expenses, or for new and experimental treatments
  • The policyholder requires funds to maintain a desired standard of living
  • The policyholder wishes to remove the policy from a trust or estate
  • A reduction in the value of the policyholder’s estate reduces the tax liability, which the life insurance policy was designed to cover
  • An increase in the liquidity of the policyholder’s estate eliminates the need for the policy
  • The policyholder wishes to donate highly appreciated assets to charity, but would be faced with liquidity constraints as the result of such a donation

A policyholder has always been able to sell a policy to the incumbent life insurance company. However, a decline in health will result in an underpayment, leaving the policyholder with less liquidity than expected or desired. The secondary market gives policyholders the freedom to choose between a number of buyers and thus receive a fair market price for the policy.