Are you in possession of a life insurance policy you no longer need or want? Have you ever asked yourself, “Can I sell my life insurance policy?” You may be reluctant to surrender it or let it lapse because of all the premiums you’ve paid over the years. Life settlement brokers provide you with a very viable option and can help you sell your life insurance policy to a third party.
What Are Life Settlement Brokers?
Life settlement brokers are licensed professionals who market and negotiate the legal sale of life insurance policies by executing a life settlement contract. Simply put, a life or viatical settlement is the sale of a life insurance policy to someone wishing to buy the policy as an investment.
Instead of surrendering your permanent life insurance policy and having your insurance company pay out the policy’s cash value to you, less any surrender fees, life settlement brokers help you sell your policy to a buyer that is willing to pay you more than the cash value to become the new owner of your policy and its death benefit.
People part with their life insurance coverage for a variety of reasons: not wanting to continue making premium payments, no longer having the same need as when they bought the policy (mortgage is now paid off), pay medical bills, or they just want to have a lump sum of money to enjoy their retirement years.
What people selling life insurance policies all have in common is this: they want to receive the most cash that they can for their policy.
Life Settlement Brokers Work For You
A life settlement broker represents you. They don’t personally buy your policy; they present your life insurance policy to multiple potential buyers on your behalf. They have a legal/fiduciary responsibility to represent you to the best of their ability throughout the entire process.
Life settlement brokers and contracts are generally regulated by the laws of each state, meaning that your broker must be licensed. When interviewing a life settlement brokerage to represent you, be sure to ask to see their license and any other documents they need to conduct a transaction.
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How Life Settlement Brokers Are Compensated
Your life settlement broker or viatical settlement provider receives a commission which is deducted from the proceeds of the sale of the life insurance policy.
This commission helps offset some of their business costs – underwriting and settlement valuation – and it’s how they earn their living. A reputable life settlement broker will disclose all of their fees upfront before you ever commit to working with them. If you aren’t offered what you consider to be a fair price for your policy, you won’t owe the life settlement broker a dime.
Some people attempt to sell their life insurance on their own – without using a life settlement broker – usually with catastrophic results. Professional life settlement providers – the people who buy your policy – know how to make low-ball offers and pay you the lowest amount possible for your policy.
Things work out for sellers much better when they use the services of a life settlement broker. The broker arranges for competitive bids as they present your policy to potential buyers in an auction format.
Buyers know that there is competition for your policy, so they can’t take advantage of you like they can when you deal directly with them. This auction system creates competition among buyers, resulting in a higher sales price for you, which more than offsets a life settlement broker’s commission.
The Life Settlement Brokerage Process
Putting together buyers and sellers of life insurance policies makes it sound like life settlement brokers have a pretty easy life. In reality, the life settlement brokerage process is quite complicated. There are many details that the broker must manage as they keep the entire process moving forward.
Let’s look at the five phases of the life settlement brokerage process that result in a successful settlement.
- Pre-qualification. In this phase, the broker will gather basic information from you to help them decide if your policy is marketable and will ultimately be sold. Your age is a significant factor – you should be at least 70 years of age to be considered for a life settlement contract.
The broker will also be inquiring about your health history and will likely need you to complete a medical questionnaire. They’ll also want to see the policy itself to get important information about:
- What type of life insurance policy it is – whole life, term life, etc.
- The face amount of the policy
- The cash surrender value
- What the monthly or annual premiums are
- Any outstanding policy loans
This pre-qualification phase will be your most significant investment of time in the process, but it’s worth it. It’s to your advantage to find out early in the process if you are a viable candidate for a sale, which can save you from investing hours more in a process that will never come to fruition.
- Document gathering. Once your broker has determined that your policy qualifies for a life settlement contract, they’ll begin to put together a document package, which is a crucial step in getting you the best price for your policy.
This documentation includes all of the essential information the broker has obtained from you and information about your life insurance policy, including written evidence that you are, in fact, the legal policy owner.
Your medical history is the information that potential buyers are most interested in. They want to see:
- Your health statement
- Completed medical questionnaire
- Medical records from your doctors
- Any lab results (if any were required or requested)
- Lifespan reports from a medical underwriter
You may not be totally comfortable sharing this information with strangers, but it’s a vital and necessary part of the process. You’ll be asked to sign a HIPAA release form authorizing your broker to gain access to your medical records from your doctor and share them with potential buyers. After you sign the release, you shouldn’t need to be involved in gathering or transferring information.
- Submission to potential buyers. Now that your broker has all of the documentation they need, they can start to market your policy. This is where the competitive bidding begins. After reviewing the documentation and doing their own due diligence on your policy’s value, they’ll start to submit offers.
This is also where life settlement brokers prove their value. Better brokers are going to have an extensive network of potential purchasers, including multiple premier-level buyers.
- Managing the auction process. Like any auction, bidders usually won’t start with their highest bid. There will be multiple rounds, with the bids getting higher in each round. Your broker will keep records of all the bids and let bidders know how competitive their offers are, which keeps the bidding going and leads to bigger offers.
Once bidding closes, your broker will report back to you and let you know what amount the winning bid was for. You then have the option to accept the bid or not.
- Finalizing the sale.
Once you’ve decided to accept the winning bid, a closing package will be assembled by your broker, similar to a real estate closing package. State laws usually dictate the necessary documents, and they can include:
- Letter of competency: A doctor must certify that you are of sound mind and can independently make rational decisions about your finances. This confirms to the buyer that you weren’t coerced into doing the transaction and that you are proceeding voluntarily.
- Coverage verification: The life insurance company needs to verify that the coverage is in force.
- Signed offer sheet: This sheet contains the details of the of the life settlement providers bid.
- The life settlement contract: this document outlines the terms of the deal.
- Life expectancy reports: these are written by underwriters and are based on your medical history (sometimes called longevity or mortality reports).
- Change of ownership form: the life insurance company requires this to keep the policy updated.
- Change of beneficiary form: The new policyowner will name a new beneficiary. This form is required for the insurer to update the policy.
All of these documents are delivered to the insurance company, and the funds to purchase the policy are put into escrow. After the insurer verifies that policy ownership and beneficiary change documents are in order, the funds (minus commissions) are released directly to you.
Like many purchases, including life insurance, there is a period of time after the transaction closes where you can change your mind. State law will determine this – it’s typically two weeks. After this period is over, the transaction is legally completed.
Selecting a Life Settlement Broker
Selecting the right life settlement broker to help you is an important decision. There are four key criteria you want to use to help you make the best choice:
- Buyer network
Let’s briefly look at each of these individually.
Licensing. Before getting started, take time to research the licensing requirements in your state for life settlement brokers. You’ll then be able to quickly eliminate any prospective brokers without the proper licensing.
Fees. Three formulas are commonly used to determine the fee you’ll pay your life settlement broker for facilitating the transaction. They are:
- Percentage of the face value
- Percentage of the offer
- Percentage of value created
Have the brokers you interview clearly describe how they’re compensated by giving you clear examples of how the percentages would work for you. You need to know this before any agreement is signed.
Communication. After talking with the life settlement broker, you’ll have a good feel for who you are comfortable with and who you have the highest level of trust in. Tell them that you want to be kept informed of your rights during every step of the process. Make sure they’ll take the time to explain to you what the various disclosures, agreements, and contracts mean.
Buyer network. The quality and depth of the broker’s network of potential buyers have a direct influence on the size and number of offers you’ll receive for your policy. Ask the broker the number of life settlement buyers that will be bidding on your policy and the number of bids you can expect.
Take your time selecting the right life settlement broker. Making the right choice will quite possibly end up making your transaction much more lucrative.
Questions and Answers
Now that we’ve looked closely at what life settlement brokers are, what they do, how they’re paid, the process they use, and how to select the best broker for you, let’s look at some frequently asked questions people have about life settlements.
Who qualifies for a life settlement?
There are certain criteria that must be met for someone to qualify for a life settlement. They can vary from company to company, but usually, the life insurance policy owner must be at least age 70, and the policy must have a face value of $100,000 or greater.
Is selling term life policy for cash permitted?
Yes, it is permitted. Your term policy will be of much greater value to buyers if it’s the type that can be converted to a universal life or whole life policy.
What is a viatical settlement provider or broker?
Viatical settlement brokers negotiate viatical settlement contracts on behalf of terminally or chronically ill people; much like life settlement, brokers negotiate life settlement contracts.
How long does the life settlement process take?
The complexity of the situation will determine how long the process takes. Under normal conditions, it takes 90-120 days, but many simple transactions are completed in less time.
Is there an application fee?
There is no application fee. Legitimate life settlement brokers won’t ask for any money upfront. The only time they’ll be compensated is if you accept an offer for your policy and the sale closes. If you don’t get an offer you feel is reasonable, and you end up not selling your policy, you won’t owe your life settlement broker anything.
Don’t lose your lifelong investment. Discover your policy’s value today.