Measuring the Performance of the Secondary Market for Life Insurance Policies

We construct an index of life insurance policies purchased in the secondary market by viatical and life settlement companies. Using the repeat sales method to measure returns over our 1993–2009 sample period, we find that policy returns average about 8 percent annually compared to 5.5 percent for the S&P 500 and 7 percent for corporate bonds, but they are twice as volatile as the S&P and four times as volatile as bonds. Nevertheless, because the index return is relatively uncorrelated with stock or bond returns, life insurance policies make attractive additions to well‐diversified portfolios.