2.5 million seniors a year will lapse or surrender their life insurance policies, walking away with little or nothing. The reason? They no longer want, no longer need, or can no longer afford their policy. Some of these seniors could be people you know, or your clients. That is the "why", but what about the "how"?
Life insurance policies are sold for cash through a process called a life insurance settlement, or life settlement for short. There are two ways to sell a policy - through a "provider" or through a "life settlements broker", and there are important distinctions between the two.
1) Provider - A provider is a buyer. Providers will tell you that the advantage to going directly to them is that clients can save broker commission. Or, insurance agents or financial advisors get to keep all of commission paid on the sale of the policy for themselves. This is true, but at what cost to clients or their advisors? Providers do not have a fiduciary duty to clients to offer them the most amount of money for a policy. Quite the opposite, buyers are trying to obtain the policy for as low a price as possible. This is no disrespect. When you or I are trying to buy a car, are we trying to pay the most amount of money for it? Of course not. So, even though life settlements broker commissions are saved, the cost to clients (and their advisors) can be high in the underpricing of their policy and lost commissions.
2) Life Settlements Broker - A broker has a fiduciary duty to clients and advisors to market their policy to obtain the highest amount of money for the policy that they can. Brokers introduce competition into the market, forcing providers to continually increase offers in order to obtain the policy. A case in point - a $400,000 policy was recently marketed. The opening offer was $10,000. By the time the policy was fully marketed, and providers competed against each other, the highest offer was $180,000. Yes, we, the life settlements broker received a commission, which was shared with the insurance agent, but the client benefitted vastly. The insurance agent benefitted significantly as well. The commission on $180,000, even though it was shared, was significantly higher than commission on $10,000.
If you or your clients are looking to sell a life insurance policy, ask the entity you are speaking with if they are a provider or a broker. It is important you know where their loyalties lie, and the advantages/disadvantages. Oh, and did I mention??? There are also marketing companies out there that are neither a provider or a broker - they simply sell the leads they generate, so be careful.
I see every day how life settlements brokers deliver value for clients and value for their financial and insurance advisors. Win-Win. We're here to help.
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