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Life Settlement Providers play a key role in the life settlement business. Life Settlement Providers are the companies that purchase existing life insurance policies from individuals (usually through brokers) and they are the ones who sell the bundled policies to investors.
The life settlement industry would not exist if there was no efficient way to buy existing life insurance policies, bundle them into packages, and sell them to institutions and high-net-worth individuals looking for alternative investments.
A person who has been diagnosed with a terminal illness, or has experienced a decline in health, may choose to sell his or her life insurance policy to pay for cancer treatments, medical assistance, or any other financial need.
Working with Investors
Hedge funds, large institutions and wealthy individuals are the primary investors in life settlements. They are looking for predictable returns that are significantly higher-than-market rate returns. Life settlement companies receive money from investors, purchase life insurance policies at a discount to the death benefit, and then share the profits that are realized after the insured pass away and they collect the full death benefit.
Working with Policy Holders
When a life settlement provide gets a policy, before they can make an offer, the policy needs to be valued. The provider works with the policy holder and relies on medical records and life expectancy tables to value the policy. The policy holder may be interviewed and asked to provide general information such as age, marital status, and if they are a smoker. The policy holder may be asked to give a brief account of their medical history and the details of the insurance policy. Information is verified and analyzed, and the policy owner receives an estimated value of a life settlement. An offer to buy the policy may be made, and the owner of the policy is free to accept or decline the offer.
Licensing Requirements
In the relatively new life settlement industry, there is no national oversight. Licensing requirements are determined by each individual state. State licensing requirements vary from state-to-state and some states have no licensing requirements at all.
As the industry matures, and more people learn about the ability to sell their life insurance policies, it will become incumbent upon the lawmakers in every state to require providers to be licensed before they can buy existing life insurance policies. Legitimate life settlement providers should have no problem complying. Regulation and licensing provides protection for both the policy holders who want to sell their policies and the individuals and entities who invest in the packaged bundle of life insurance policies.
How do you Know if a Provider is Trustworthy?
Trust is built over time, but it can also be established by transparency. Before you jump right-in and allow a life settlement provider to value your policy, set up a meeting. Spend some time talking about the entire process. A trustworthy provider will:
- Counsel you about your decision to sell
- Answer all of your questions
- Give you a copy of all documents that you sign
Finally, you can check to see if your provider is a member of LISA (Life Insurance Settlement Association). All members of LISA are carefully screened and must maintain the highest of standards to remain a member.