Evaluating life settlement companies can be a difficult and confusing process. The process of selling an unwanted or unneeded policy is regulated in most states which can add to the headache and confusion. There are several different types of life settlement companies that work with policyholders, but each type plays a different role in the process. Before selling your policy, it is important to understand who you are working with and how to evaluate certain key details involved in the process.
Brokers, Providers & Investors
There are three types of companies involved in each life settlement transaction: a broker, a provider, and an investor (i.e., the buyer). Other parties can be involved as well, but these three roles are involved in most sales by a policyholder.
Life settlement brokers are individuals or companies that represent policyholders and help them prepare for, negotiate, and close the sale of their policy.
Life settlement providers are companies that represent investors and help them to select, negotiate and close the transaction.
Providers are the only entities legally permitted to process life settlements in the states that regulate the industry.
Investors buy policies through providers and ultimately own and manage them until they mature.
The transaction itself is regulated and both brokers and providers are required to be licensed and, in many cases, they must utilize and abide by documents and forms that have been approved by the state in which the transaction is processed.
If you are interested in selling your life insurance policy, you have the option of working with a broker or representing yourself. Brokers navigate the market to find competitive bids for your policy before connecting sellers (i.e., policyholders) with providers. They are experienced in the field and know where to look for the best deals, while guiding you through the process. Brokers are paid a commission for their services.
Providers are regulated by each state in which they do business and they are required to provide policyholders and insureds with certain disclosure forms and documents as part of their process in buying a policy. Whether you choose to be represented by a broker or represent yourself, it is important to keep in mind that providers represent the buy-side of a life settlement transaction.
Both brokers and providers will help policyholders through the process, but their roles and incentives are different. So, before settling on the companies you choose to do business with, be sure they meet key criteria so your transaction is handled both efficiently and legally; that way you get the best deal possible!
What Exactly to Evaluate
One of the first things to check for is that you are working with a properly licensed life settlement company. LISA member firms generally have a track record and operating history, as well as being associated with and involved in the industry-at-large. Life settlements are conducted using a strict legal process through which policyholders are provided not only money for their unwanted policies, but also disclosures and other information to thoroughly explain the transaction, risks and benefits involved. It is critically important to ensure that you’re working with someone who is both competent and trustworthy.
It is also important to understand the licensing, bonding, and insurance coverages held by the companies you choose to work with. State regulations are designed to protect sellers throughout the sale process, and thereafter. While regulations vary slightly from state-to-state, licensed life settlement companies, the practices, procedures, and documentation they use has been approved and vetted by regulatory authorities.
Also, be sure to check that the firm or company you are working with is bonded, where required, and insured. Some states require life settlement companies to post a bond or surety to protect consumers. If you live in such a state, you can contact the regulators to confirm the companies you are considering are properly bonded or insured. Another factor to consider before settling on a life settlement company is their insurance. You should make sure they have Errors and Omissions (“E&O”) insurance coverage, and that their coverage meets any required state standards. Companies that either do not have insurance or are underinsured may not be suitable counter parties.
Finally, be sure to take into consideration the confidentiality of your information, as well as any tax obligations that may come with the transaction. Although investors or their service providers will have to check-in on insureds to update their health status, be sure to obtain written confidentiality agreements for all of your personal information. Furthermore, while viatical settlements may be free from any Federal tax obligation, life settlements are not. So be sure to consult a tax advisor before finalizing your sale.
Always be sure that the company of your choice is reputable, licensed in good standing and a LISA member, so you receive the best deal possible and the process goes smoothly. For help finding a life settlement company, please use the resources made available through the Life Insurance Settlement Association or contact us today.