The Dilemma of the Financial Advisor – A Life Settlement Provider or a Life Settlement Broker?

Kimberly MaturinoFrontpage Article, News

Financial advisors often depend on a life settlement broker to help them when a client wants to buy life insurance policy. There’s no denying some financial advisors prefer to work with life insurance providers instead of brokers.

There is no centralized exchange for life insurance settlements, unlike stocks, bonds, or precious metals, so it can be a complicated process for someone who isn’t familiar with the way it works.

There are different provisions for different life insurance policies. Plus, the premium costs and schedules can vary greatly, not to forget the health of the insured also comes into play as it affects the coverage and costs associated with the policy.

The Life Settlement Broker

Much like the real estate market, the secondary life insurance market has unique assets. The life settlement brokers will first work to determine the policy details and information as well as consumer health information. This research is done so a value can be determined for each policy.

Consumers have the right to sell their policy directly to a life settlement provider, just as they would in case of real estate. Not everyone uses a broker or an agent to buy life insurance, just as not everyone who buys real estate uses a realtor.

The policy owner is represented by the life settlement broker.

After a broker has gathered all the medical records for their client and determined the insureds life expectancy, they are to shop the policy out to all the licensed buyers who are available in the state where the policy owner lives. While many life settlement brokers work diligently shopping out the policy to as many buyers as possible, there are some who are not nearly as diligent as the others and instead of shopping it out, they focus primarily on a quick sale.

The Life Settlement Provider

In many instances, the life settlement provider is the actual buyer or is working for the buyer. Other than fair practice, the life settlement provider has no fiduciary responsibility to the consumer, so they will work to buy the life insurance contract at the lowest possible price.

Because of the complexity of the matter, it is often difficult for the consumer to decide which is the best – working with the life settlement broker or the life settlement provider.

When a life settlement broker is used, greater gross offers result but taking the fee into consideration– which is about 30 percent in most cases – the consumer’s net offer works out less than what they would have had in case hey sold their life insurance policy to the life settlement provider directly.

There have been situations, however, where the life settlement provider offers the consumer significantly lower payment than the policy’s true market value, and the consumer is not made aware of their policy’s actual hidden value throughout the transaction process.

Life Settlement Provider

Should You Recommend Your Client Use A Broker or A Provider?

When a customer meets with a life settlement broker, they may be told they shouldn’t try to sell the life insurance policy on their own.

The broker will then put the policy out on the market where there is a broad client base, and the broker will tell the consumer that all interested parties will be made aware of the policy being up for sale. Some life insurance brokers will not take on a consumer if they find out the individual has already started the process of making their policy available to other buyers.

Regardless of whether you enlist the help of a life insurance broker or you take your life insurance policy straight to a life settlement provider, there will be someone spending a significant amount of cash to get your medical information from your healthcare providers, gathering policy details to confirm your coverages, and verifying the details of your premium schedules from the life insurance company and getting a life expectancy report.

A life expectancy report currently costs anywhere from $450 to $630, and often buyers need two life expectancy reports before they will even make an offer for a policy. A life settlement broker or life settlement provider can easily spend in excess of $1,500 upfront on an appraisal process. No one would want to invest that much in a task that they don’t have a reasonable chance of handling and profiting from.

There are several well-established life settlement providers who make use of the same pricing schedule regardless of whether they are buying directly from a consumer or through a life settlement broker. Most states require life settlement providers to report all the policies that they have purchased throughout the year, and these reports are then reviewed by state overseers to ensure consistency in the methodology used for the purchase prices.

Basically, this practice indicates that some life settlement buyers will make the same offer to the consumer that they would offer the life settlement broker to make sure their reports don’t show any mismatch of anyone being treated unfairly.

Choosing The Right Life Settlement Company For Your Customers

If you are looking to make the most for your life insurance policy or your client’s life insurance policy, you should try to get an idea of the policy value before you approach a life settlement broker or a life settlement provider. Unfortunately, most people don’t have a clue as to how to get the general idea of the value.

You can get an appraisal of the market value upfront by gathering all the necessary information to determine your policy value and submit it directly to an institutional buyer, who in turn, will make an actual direct offer to the owner of the policy.