Most Advisors rely on a life settlement broker to assist them in the sale of a life insurance policy, but some Advisors work directly with life insurance providers. Unlike with precious metals, stocks or bonds, there is no centralized exchange for Life Settlements. Every situation is unique because life insurance policies have different provisions, costs of insurance and premium schedules, and this has to be contrasted against the unique health of the underlying insured.
Life Settlement Broker
The secondary market for life insurance is more akin to Real Estate, where the asset is unique. Life Settlement Brokerages work to gather consumer health and policy information in an effort to establish a value for each individual policy, but as in Real Estate, consumers absolutely maintain the right to sell their policy direct to a Life Settlement Provider. As with Real Estate, not everyone uses an agent or broker.
A Life Settlement Broker represents a policy owner and has a fiduciary capacity to that owner. Once they have mustered all of a client’s medical records and policy information they are supposed to shop the policy to the available licensed buyers in the policy owner’s State of residence. Many Life Settlement Brokers do exactly that, but there have certainly been instances where Life Settlement Brokers do not shop the policy as widely as they should, though many are diligent in doing so.
The Life Settlement Broker attempts to get competitive bids for a life insurance policy and charges a fee for their service. The fee is usually in the 30% of value range but can be lower or higher. Fees need to be disclosed to the policy owner in most states, but there are still about a half a dozen states that have not adopted laws, acts or regulations that protect the consumer with necessary transparency.
Life Settlement Provider
A Life Settlement Provider on the other hand works for the buyer or in many instances is the actual buyer. Life Settlement Providers have no fiduciary responsibility to the consumer beyond fair practice and try to purchase life insurance policies for the least amount of money they can.
It is often difficult for the uninitiated advisor or consumer to know which route to take. Utilizing the services of a Life Settlement Brokerage should get the highest gross offers, but after the 30% fee (in many cases) is exacted, the net offer to the consumer is often less than if they had attempted to sell their life insurance policy directly to a Life Settlement Provider. Conversely, there have been cases where a Life Settlement Provider, when approached directly by a consumer, offers much less than the actual market value of the policy and without the consumer ever being made aware of the actual hidden value in their life insurance policy.
Broker or Provider: Which Should You Recommend For Your Client?
When a consumer approaches a Life Settlement Broker they are sometimes told that they should abandon any measures to sell their life insurance policy themselves because the Life Settlement Broker will take it to the market for them in a broad sweep, assuring that all interested buyers are aware of the policy being for sale in the free secondary market for life insurance. Some Life Settlement Brokers will not consider taking on a client if they have already began the process of shopping their life insurance policy directly to buyers.
That makes sense to a degree. Whether you utilize the services of a Life Settlement Broker or take your policy directly to a licensed Life Settlement Provider in your state, someone is going to spend a great deal of money mustering your medical information from your attending physicians, gathering policy illustrations and verifying coverages and premium schedules from your life insurance company and purchasing a life expectancy (LE) report.
It can cost hundreds of dollars in copying fees to attain your medical records and it does currently cost from $350 to $530 dollars to secure an independent Life expectancy report and many buyers need to have two independent life expectancy reports before they make an offer. It is not uncommon for either a life settlement provider or a life settlement brokerage to spend in excess of $1000 on the front end of the appraisal process and none of them would care to willingly spend so much money on a case that they stand a less than reasonable chance of transacting.
Many reputable Life Settlement Providers will utilize the same pricing schedule whether they are buying direct from a consumer or by way of a Life Settlement Broker. This is an important fact that is often overlooked. Most regulated states require the reporting, by Life Settlement Providers, of all of the policies they purchase throughout the year and they review these reports for consistency in purchase pricing methodology.
This simply means that some Life Settlement Buyers will make the same gross offer to the consumer that they would make to a Life Settlement Broker to assure they show no improprieties at year end and have treated every case in similar fashion.
Choosing A Life Settlement Settlement Company For Your Clients
If you are truly looking to get the most money for your (or your client’s) life insurance policy, it is good to have some semblance of value before approaching a Life Settlement Broker or Life Settlement Provider, but most people simply have no idea of how to do that.
Prosperity Life Settlements will assist you with obtaining an appraisal of market value on the front end by assembling all of the pieces of information necessary to value a life insurance policy and submitting it to a direct institutional buyer, who will make an actual direct offer to the policy owner. There is no better starting point, and having an actual direct offer from a Life Settlement Buyer on the front end of the process is highly beneficial to the consumer.