life settlements and viaticals

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1、CHAPTER74lifesettlementsandviaticalsInthisChapter...•life•sex•death74.1INTRODUCTIONAndnowforsomethingcompletely...morbid.Lifesettlementsandviaticalsarecontractsassociatedwithdeath.Thetwoexpressionscanbeusedinterchangeably,although‘viatical’isoftenasso

2、ciatedwithalifewithanalreadydiagnosedterminalillness.Withthesecontractsexpirationmeanspreciselythat.Lifesettlementsareasecondarymarketforthelifeinsurancepoliciesheldbyindividuals.Theseindividualsmay,typicallylaterinlife,wanttoselltheirpolicy.Thecommon

3、reasonsare•theycannolongeraffordtopaythelife-insurancepremium;•aspartofestateplanning;•theyneedthemoneytopayformedicaltreatment;•theynolongerneedthelifeinsurance.Thepolicyisusuallyworthalotmorethanitssurrendervalue.Manyoftheselifeinsurancepoliciesaret

4、henusuallypackagedtogetherandsoldasoneproduct.Tothequant,thequestionishowtomodelandprice,andhedge,individualpoliciesandportfoliosofpolicies.74.2LIFEEXPECTANCYInestimatingthechancesofanindividualdyingatdifferentagesyoutypicallyhavenon-specificandspecific

5、piecesofinformation.Thefirstcomesfromactuarialtablesforpopulationsasawhole.Suchtablesmaybespecifictothe‘type’ofpersonsellingtheirpolicy,inthesensethatitmayrefertotheirsex,whetherornottheysmoke,theillness(es)theysufferfrom.Butitwon’tbespecifictotheindivid

6、ualperson.Forthatsortofinformationthepolicypurchaser1162PartFiveadvancedtopicswillrequiretheindividualtobeexaminedbyanapprovedlifeexpectancyprovider.Thiswillbeamedicalexaminer(ME)whowillexaminethepolicyholdertodeterminealifeexpectancyforthatindividual

7、.Althoughtermeda‘lifeexpectancy’(LE)thenumbergivenbytheMEwillactuallybeanestimateforthe‘median’oftheperson’slife,andnotitsexpectedvalueoraverage.TheMEwilloftenincludeintheirestimationanallowanceforexpectednewcuresforterminalillnesses.Figure74.1showsat

8、ypicalLEcertificatefromaLEprovider.Figure74.1Lifeexpectancycertificate.lifesettlementsandviaticalsChapter74116374.2.1SexOneofthedominantfactorsaffectingLEissex.No,nothowoftenyougetit,althoughI’msurethathasanimpact,butyourgender.Aseverymanknows,t