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The Journal of Structured Finance

The Journal of Structured Finance

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Primary Article

The Return on a Pool of Senior Life Settlements

Charles A. Stone and Anne Zissu
The Journal of Structured Finance Summer 2007, 13 (2) 62-69; DOI: https://doi.org/10.3905/jsf.2007.690269
Charles A. Stone
An associate professor of finance at the department of economics, Brooklyn College, City University of New York in New York, NY. zfinance@interserv.com
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  • For correspondence: zfinance@interserv.com
Anne Zissu
An associate professor of finance at the department of finance, Temple University in Philadelphia, PA. zissu@sprynet.com
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  • For correspondence: zissu@sprynet.com
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Abstract

In this article we illustrate how the yield on an investment in a block of life settlement contracts changes across prices paid for the policies and how the yield for an offered price changes when the actual life of the insured extends beyond life expectancy. The reader will see that earning yields between 7% and 11%, figures that have in the last few years been touted in the life settlement industry, are associated with offers for policies that are relatively high discounts from face value, and that even a six-month extension in life beyond the life expectancy reduces the actual yield an investor will earn, below the 7% to 11% range. Once fees are deducted each period, which is the way the managers and owners of investment funds are compensated, the discount from face value consistent with each yield is reduced even further. Our objective has not been to find the appropriate discount rate for a pool of senior life settlements but more simply to illustrate how the required yield on an actual block of life settlement contracts dictates the price that investors can offer for policies. We also show that as required returns increase, the value that can be offered for life settlement contracts approaches the cash surrender value.

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The Journal of Structured Finance
Vol. 13, Issue 2
Summer 2007
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The Return on a Pool of Senior Life Settlements
Charles A. Stone, Anne Zissu
The Journal of Structured Finance Jul 2007, 13 (2) 62-69; DOI: 10.3905/jsf.2007.690269

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The Return on a Pool of Senior Life Settlements
Charles A. Stone, Anne Zissu
The Journal of Structured Finance Jul 2007, 13 (2) 62-69; DOI: 10.3905/jsf.2007.690269
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  • Extending the Efficient Frontier through Life Settlements
  • Common Securities Law Questions in the Life Settlements and Life Insurance Premium Finance Industries
  • Life Settlements
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