Navigating Life Settlements: How do you ensure your client monetizes their policy for fair market value (FMV) rather than settling for discounted value?
The path you choose will determine how much value created ends up on the policy owner/sell-side of the negotiation table versus the buy-side. One wrong turn can take you and your client down a path that enhances investor returns at the expense of providing more value to your client. Right now, policy owners are being bombarded with life settlement marketing that can often blur the lines between truth and fiction. It's important to help your clients make an informed decision by choosing a life settlement partner who is 100% aligned with you and your client.
PRACTICE TIP: SECURING INDEPENDENT REPRESENTATION FOR YOUR CLIENT IS THE CORNERSTONE OF A SUCCESSFUL LIFE SETTLEMENT.
An existing life insurance policy, including convertible term insurance, may contain significant value beyond the cash surrender value (CSV) that can be accessed through a life settlement. A life settlement is the sale of an existing life insurance policy for an amount greater than the CSV but less than the death benefit. How much value your client receives is dependent on which life settlement company is chosen to represent them. The good news is that life settlements are highly regulated and require licensing that distinguishes between a seller's representative and a buyer's representative. Securing independent representation for your client is the cornerstone of a successful life settlement.
Life Settlement Brokers (sell-side advisory) vs. Life Settlement Providers (buy-side advisory)
There are only two entities licensed to handle life settlement negotiations. One represents the seller, the other represents the buyers. Licensed life settlement brokers are fiduciaries to your client, the policy owner. Their sole responsibility is to represent the policy owner in the life settlement transaction and obtain the best offer based on your client’s situation and needs.
One wrong turn can take you and your client down a path that enhances the buyer's returns at the expense of providing more value to your client.
On the buy side, life settlement providers are licensed to represent the best interests of the purchaser. Most advisors are unfamiliar with the term provider, which is often conflated with the term "buyer". As a result, advisors often unknowingly end up on the wrong side of the negotiation table, working with a provider. Consumers are even more vulnerable because of increased consumer-direct ads from providers on television and social media aimed at disintermediating the policy owner's representation. If your client responds to an advertisement and gets involved with a “direct buyer,” they are dealing with a provider.
PRACTICE TIP: A BROKER-MANAGED LIFE INSURANCE POLICY AUCTION FORCES COMPETITION AMONG BUYERS TO ENSURE THE POLICY OWNER GETS THE BEST OFFER FOR THE POLICY.
NOTE: Only choose one broker that forces buyer competition. When purchasers receive information from two or more sources, control of the case is lost, often resulting in a discounted offer to the seller. It also ensures the protection of sensitive client information. A secure policy auction will ensure your client's policy will be reviewed by all available buyers.
Due Diligence: Determine if a life settlement company is on the buy-side or sell-side
Ask potential life settlement resources these two questions:
- “Are you a licensed life settlement broker or a life settlement provider”? Have them produce their license for your state if you’re not sure. You can also visit their website to find the answer. Sometimes you must read the fine print. If you discover that they are a licensed life settlement provider, then they are a buyer’s representative. Providers will gladly help your client sell their policy directly to the buyer, but they can’t serve two masters. They have a fiduciary duty to the buyers, not your client. Many life settlement resources are just lead generation companies and are not licensed to represent either side of the table. Do you really want a lead generation company to have access to your client’s sensitive data and health information?
- “Do you conduct a life insurance policy auction forcing buyers to compete?” Only a nationally licensed life settlement broker has the licensing and the expertise to conduct a successful life insurance policy auction.
IMPORTANT: insurance agents who want to receive a commission from a life settlement must first be appointed as a life settlement broker. They may complete one or two life settlement cases per year. They do not have the staff, national licensing, or expertise to run the policy auction. Make sure your resource is a nationally licensed life settlement broker. Fiduciaries do not take commissions but can charge fees for life insurance valuation and other services provided by a life settlement broker.
Bottom line: There are only two licensed entities that sit at the negotiation table. Life Settlement Brokers represent your client’s best interests, and Life Settlement Providers represent the buyer’s best interests. The first step is to verify that the life settlement company you choose to help your client is a seller’s representative. Starting on the right foot will have a big impact on the value your client receives.
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Ashar Group is a nationally licensed life settlement broker that protects the best interests of policy owners by creating a competitive policy auction to deliver the best value to the seller. Ashar Group does not sell life insurance, manage assets, or purchase policies. We are an independent resource for fiduciary advisors and their clients specializing in life insurance valuation for planning purposes.
Use our life settlement probability calculator to determine potential opportunities, or contact us today to learn more about the life settlement solution.