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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.

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One Comment

  1. That link didn’t work for me, but I found it here:

    http://www.coventry.com/pdfs/contingencies.pdf


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