Understanding Life Settlement Brokers and Life Settlement Providers
Understanding your options as you consider how to sell your life insurance policy can be confusing. However, the most important first steps you can take in working through a life insurance policy settlement are qualifying and valuing your policy before you do anything. “Qualifying” is a matter of determining if your health, age and policy are likely to make you eligible for a life settlement. “Valuing” is the process of determining how much your policy is worth in the marketplace and, therefore, how much cash you can expect from the life settlement process.
“Qualifying” a policy requires studying the terms of the contract between you and the insurance carrier. Many forms of life insurance are suitable for life settlement, but the potential buyer still needs to review your insurance policy and verify your life insurance coverage. Your health needs to ultimately be evaluated by a third party life expectancy company, but answering a few questions usually gives a pretty good indication as to whether you are likely to qualify or not.
Turning to “Valuation,” keep in mind that your policy is a financial asset that you own. However, there is no single “clearinghouse” that can instantly determine the settlement value of your policy. In fact, your policy bears a lot in common with other financial assets that require special consideration. For instance, just as the true market value of antiques, fine art and rare collectibles varies based on many factors, so too is each life insurance policy valued on its own unique form as well as the health and age of the policy owner.
Similarly, your policy is a unique asset much like a piece of residential real estate. A real estate agent will value a property based on comparable properties in the area; on square footage, amenities, age and condition, among other factors. Most homeowners are not able to do all this on their own, nor are they able to properly value a life insurance policy based upon life expectancy factors, actuarial tables and Life Insurance Policy illustrations.
Fortunately, even though there is no “clearinghouse” for qualifying or valuing your life policy, there are licensed companies in the secondary market for life insurance that facilitate the transaction. They are known as Life Settlement Brokers and Life Settlement Providers.
Life Settlement Brokers
Life settlement brokers are companies or individuals that qualify your policy for settlement. They gather information the buyer needs to put a value on your policy, and then deliver that information and shop your life insurance policy potential buyers. Brokers work with you on a fiduciary basis, which means they have legal and ethical obligations to work in your best interest rather than for personal profit. In other words, the broker is chartered to help you find the best offer for your policy.
Collecting all the information a buyer needs can take weeks or months even for the most experienced brokers. Brokers take the unpleasant burden of gathering that data off your shoulders. They also reduce the amount of time, effort and emotional stress you could experience if you choose to sell your policy on your own.
Once the broker gathers all the required information, the broker is ready to “shop” your policy to various potential buyers within your state of residence. It is up to the broker to be diligent and assure your policy is presented to a broad number of potential buyers. They could potentially share your medical information with dozens of potential buyers. Brokers will sometimes not take on a new client if they find the client has already begun shopping a policy around to potential buyers.
In return for gathering all the necessary medical and policy information, then presenting it to potential buyers, brokers charge a fee. It is usually in the range of 30 percent of the amount offered for your policy, although it may be higher or lower. State laws in most (not all) states require that any fees and commissions be disclosed to the policy owner in advance so he or she can decide whether to use a life settlement broker.
Life Settlement Providers
Life settlement providers are direct buyers of life insurance policies and often purchase life insurance policies for institutional investors (pension funds, family offices, banks, labor unions, etc.) that become the ultimate buyers. Providers are licensed in each state in which they operate and must comply with all applicable laws and licensing requirements.
Life settlement providers have no fiduciary responsibility to the you, the policy owner, beyond fair practices and compliance with relevant laws and regulations. Their goal, like that of any buyer, is to purchase your life insurance policy for the best value possible. Keep in mind that once a Life Settlement Provider buys (or arranges for an investor to buy) your policy, the buyer pays premiums on the policy until you die, at which time the buyer receives the death benefit. Buyers expect each life settlement purchase will be profitable in the long run, which is why obtaining a Life Expectancy Report and other health data is so critical to the valuation of your policy.
For example, obtaining copies of your medical records from your primary care physician and specialists you have visited can cost hundreds of dollars in copying fees alone. Obtaining a Life Expectancy report currently costs anywhere from $300 to $550 per report. Many buyers ask for two such reports before they are willing to make an offer on your policy. It is not unusual for either the Life Settlement Broker or Life Settlement Provider to spend more than $1000 to appraise your policy, qualify it and arrive at a settlement offer. Clearly, neither a broker nor a provider wants to spend those dollars on a policy that has a limited chance of being purchased.
Another point to remember: Life Settlement Providers are required by law, (in most states that are regulated), to report details on policies they buy over the course of each year. To avoid any charges of inequitable practices, some of these providers offer the same price to you, the policy owner, whether they purchase the policy directly from you or through a broker. Making the same offer to you as they would make to a broker eliminates any semblance of improper business practices.
What’s Your Best First Step?
Get your policy appraised and qualified so you have an idea of its value in the life settlement marketplace. Brokers can certainly do most of that work for you, although at a cost that can consume 30 percent or more of your payout. Alternately, you could decide to sell directly to a Life Settlement Provider and you should know the provider with the greatest appetite for your type of policy. You will need to submit your confidential health information to multiple buyers on your own to get the best offer when going direct.
Reverse Life Insurance will help you qualify your policy and get an appraisal of the market value. We will quickly collect and assemble the information necessary to value your life insurance policy. The appraisal you receive is an actual direct offer to purchase directly from a licensed buyer in your state. You have no obligation and there is absolutely no charge to learn the value of your life insurance policy. We are paid directly by licensed buyers for our service and the offer from the direct buyers is always directly to you with no commissions or fees deducted.