Sellers Side Parties:

Owner/Insured, Producer, Life Settlement Broker

The seller’s side, of course, begins with a policy owner that no longer wants, needs, or can afford a life insurance policy. Where the policy owner and insured are not the same, as in a business owned or trust owned arrangement, both must agree to and be parties to the transaction.

Typically, the producer is the policy owner’s life insurance agent. Unlike many life insurance transactions, the producer represents the policy owner only, is legally considered a life settlement broker, and acts in a fiduciary capacity. Satisfying the fiduciary obligation means, in part, obtaining the highest price that is reasonably possible. To accomplish this, the policy should be exposed to as many potential buyers as is feasible.

Because most insurance agents don’t handle many life settlements, they usually rely on a trusted life settlement broker, working full-time in the business and also in a fiduciary capacity, for their expertise to properly shop the policy to a good number of buyers to get the most out of the policy for the seller.

Buyers Side Parties:

Providers, Investment Institutions and Investors

The provider acts as a buyer’s broker, but just the opposite of the settlement broker, the provider acts solely on behalf of the buyer with the mission to obtain policies as cheaply as possible. The provider is the primary contact for the seller’s settlement broker.

A provider acts as an aggregator of policies on behalf of one or more investment institutions. Providers acquire policies under several different arrangements. Frequently, the provider has an agreement with an investment institution to acquire policies that meet certain parameters. Other times, the provider identifies attractive policies for purchase and presents them to institutions that are looking to acquire policies.

The investment institution might be a bank, investment bank, mutual fund, pension fund, hedge fund, insurance company, etc. Although the investment institution may be buying on its own behalf, frequently it is representing a group of investors like the shareholders of a mutual fund.

Occasionally, much like a builder constructing a home “on spec,” a provider might acquire an attractive policy on its own with the hope of reselling it to an investment institution at a future time. Finally, some providers may acquire policies for their own account.

The provider, on the buyer’s behalf, does comprehensive due diligence on any policy it has decided to purchase, which includes confirming ownership, policy values, eliminating the possibility of fraud on the policy’s origination, assuring that the policy has not lapsed and validating information provided on the life settlement questionnaire completed by the seller/insured.

It is also customary for the investment institution to do its own separate review of the policy. This review is done only after the provider has signed off and sometimes additional issues get raised even though the provider has approved the transaction.

Intermediaries:

Life Expectancy Company, Insurance Company, Escrow Agent

Intermediaries also play significant roles in the transaction. Life expectancy companies are independent third parties comprised of doctors, nurses, actuaries, and underwriters that give appraisals of an insured’s life expectancy using medical records. No physical examination is required. Investment institutions frequently require at least one or two of these independent appraisals before they will allow a provider to make an offer on a policy.

A life settlement is typically, but not always, transacted using the services of an escrow agent (a bank, trust company, or other entity) that holds the policy and the sales proceeds while the closing takes place.

The other intermediary, the insurance company, is asked to confirm various details about the policy, often including premium and ownership history. Policy values and other details are obtained from the insurer using a form called a V.O.C. (verification of coverage).

Once the closing takes place, the insurance company is asked to provide confirmation that the ownership and beneficiary of the policy have been changed. These final steps can take several days to a few weeks, and when completed, the escrow company finally releases the proceeds to the seller.

As you can see, a life settlement is a complex, highly-regulated transaction that involves lots of due diligence, loads of records and paperwork and, as a result, takes a long time – about 3 to 4 months. All in all, many hands play a part in the transaction, which can sometimes make it tedious and time-consuming. But the additional value a seller receives for a policy they were about to lapse or surrender can make it very worthwhile.

Bottom line – if a policy is about to be lapsed or surrendered, you owe it to the policyowner to explore the option of a life settlement.  Remember, it can’t hurt to try – it can only hurt not to!