Good article on nonforfeiture laws

Today’s class addressed regulation of cash surrender values in life insurance policies. As I mentioned, states have developed “nonforfeiture” laws that require certain insurance policies to provide non-zero payments in the event the policy lapses. Since these lapse payments may be less than the difference between (a) the expected present value of future death benefits and (b) the expected present value of future premiums, the insurer may still do better if the policy lapses than if it is held until death. The life settlement market, as discussed in class, can thus be seen as an effort to prevent insurers from profiting in this fashion. I have found an interesting and reasonably clear article on this point. It is Jay M. Jaffe, Rewriting Nonforfeiture Law to Rewrite Whole Life, Contingencies, Sept/Oct. 2003 available here.

It pays to read carefully

While doing the reading for the first class, I noticed that  in the spreadsheet on p. 44 of the Black and Skipper reading, the formula for Column 15 is listed as  0.08[(9)+(10)-(11)-(12)-(13)-(14)+(15)].  That didn’t make sense to me. From a “spreadsheet” perspective, it would create a circularity. And from a logical perspective, it wouldn’t make sense either, because one would not not earn full interest on interest even with compounding. So, I sent Professor Skipper (Prof. Black is dead) an e-mail questioning him about it. He agrees that it is an error that has apparently gone unnoticed since the book – the leading textbook in life and health insurance — was published in 1999. 

Moral of story, I think. Be an interactive reader and don’t accept everything at face value.

Hello world!

This is a blog on the law of life insurance and health insurance. It’s catalyzed by a course (Life and Health Insurance Law) being taught at the University of Houston Law Center during fall 2008 by Professor Seth J. Chandler. Professor Chandler is likely to be the lead contributor but his students are strongly encouraged to contribute as well, both through original entries and comments. Comments are moderated to eliminate spam or matters that are way off topic, but otherwise it is an open forum for information and opinion.