Depreciation allowances in the valuation of reversions

Extract

Collins in his Reversions and Life Interests (1925) sets out on p. 22 the five points to be considered by a purchaser in assessing the probable value of the fund which will be available when the reversion falls into possession on the death of the life tenant. These points are the risks of deferment, diminution, dispossession, depreciation of investments and default by the Trustees. The first three have been fully discussed in Collins's lectures and elsewhere, and the last is an inevitable risk which is best allowed for in the valuation rate of interest, being one of the reasons why a Life Office purchasing a reversion looks for a return on this investment a good deal greater than it expects from a first-class Stock Exchange security. It is not proposed to consider these four risks in detail here.