Thinking of selling a life insurance policy through a life settlement? Whether you’re a policyholder or a financial advisor working on behalf of a client, you’re likely to encounter two key players in the settlement process: life settlement brokers and providers.
Choosing a life settlement broker or life settlement provider can significantly impact the outcome of a settlement transaction — and one option is clearly better for the policyholder. Keep reading to learn the roles, responsibilities, and differences between life settlement brokers and providers so you can make an informed decision when selling a life insurance policy.
WHAT IS A LIFE SETTLEMENT BROKER?
A life settlement broker is a professional who represents policyholders in selling their life insurance policies. Brokers act as intermediaries who connect policyholders with potential policy buyers. Their goal is to help policyholders secure the best possible offer for their policy on the settlement market.
Settlement brokers use their network and industry knowledge to solicit multiple bids from policy buyers. They also work to negotiate terms of the sale and help guide policyholders and their financial advisors through the sale process.
In exchange for their services, life settlement brokers charge a commission. This fee is generally a percentage of the final sale price of the policy. Even with the fee, a broker’s ability to secure multiple offers can significantly increase the policyholder’s payout.
Pros of Life Settlement Brokers
There are many reasons a policyholder or financial advisor would choose to work with a life settlement broker. The biggest advantages of selling a life insurance policy through a settlement broker include:
- Access to multiple offers: Brokers leverage their network to secure bids from multiple buyers, which can help policyholders sell their policies for a higher price.
- Expert policy valuation: Experienced brokers can determine the true value of a life insurance policy by utilizing a proprietary pricing module. A policyholder or financial advisor may unknowingly accept a much lower offer from a provider or direct buyer.
- Expert guidance: Brokers offer valuable advice to help policyholders understand complex offers and negotiate better terms.
- Fiduciary duty: Your broker has a legal obligation to act in your best interest so you can be sure they’re trying to get the best outcome.
- Regulatory compliance: Brokers reduce the risk of legal complications for your settlement by adhering to any state regulations or legal requirements. Additionally, most brokers carry errors and omissions insurance that covers the producer or financial advisor.
- Negotiation experience: Brokers have the experience to effectively value a policy and negotiate with buyers for the best outcome for your policy sale.
Cons of Life Settlement Brokers
Despite the benefits of using a settlement broker, there are a few notable downsides to selling your policy this way. Cons of working with a settlement broker include:
- Commission fees: Brokers generally charge a fee of a small percentage of the total sale price of a policy settlement.
- Lengthier selling process: Since brokers are working to get multiple offers for a policy, the settlement process can take slightly longer than selling a policy directly.
WHAT IS A LIFE SETTLEMENT PROVIDER?
A life settlement provider is a company or financial institution that buys life insurance policies directly from policyholders. They offer policyholders a lump sum of cash in exchange for ownership of the life insurance policy.
Working directly with a life settlement provider could speed up the settlement transaction process, as it cuts out the middleman of a broker. However, there is no competitive bidding involved in a direct sale, so the offer price is often lower than the policyholder would get by working with a broker.
Pros of Life Settlement Providers
Providers offer a few benefits to policyholders who want to sell their life insurance, such as:
- Faster transactions: Working directly with a provider can potentially streamline the settlement process for a faster payout.
- No broker fees: By bypassing a broker, policyholders avoid paying commission fees.
Cons of Life Settlement Providers
Selling a life insurance policy directly to a provider can have key downsides, including:
- Lower offers: Offers from direct providers tend to be lower than you could get on a broker’s settlement market.
- Lack of expert guidance: Selling directly to a provider means you’re giving up the guidance and experience of a broker who has your best interests in mind.
- Reduced negotiation power: Whether you’re a policyholder or financial advisor, it’s unlikely you have extensive experience in negotiating life settlements.
- Potential for unfavorable terms: Settlement providers aim to get policies for the lowest price possible, which could lead to unfavorable terms for you or your client.
LIFE SETTLEMENT BROKERS VS. PROVIDERS: WHAT’S THE DIFFERENCE?
In sum, there are six key differences between life settlement brokers and providers:
- Indirect vs. direct sales: Brokers go in between you and policy buyers to negotiate favorable terms while providers buy your policy directly.
- Amount of offers: Brokers tend to receive multiple offers for your policy, while providers may only offer one. Brokers have the ability to price the policy to determine true market value. Providers will try to pay the policy owner as little as possible.
- Fiduciary duty: Brokers take on a fiduciary duty to policyholders and financial advisors, whereas providers do not have fiduciary obligations.
- Transaction time: Selling directly to a provider may take less time than working with a broker, but you may miss out on a better payout for your policy.
- Fees: Brokers charge a small commission fee for their work negotiating the best price for your policy.
- Protection for producers: Providers do not offer legal protection for financial advisors or producers selling on behalf of their clients, while brokers take on the legal responsibilities of selling a policy.
WHICH OPTION HAS BETTER VALUE?
Except in very specific cases, a life settlement broker offers more value when selling a life insurance policy. Your settlement broker becomes your or your client’s advocate in the life settlement process. Unlike providers, who are looking to buy policies at the lowest price, brokers aim to get the highest possible price and best terms of sale for your policy.
It’s also important that you choose a trusted settlement broker for your sale. A reputable broker will offer unmatched customer service and put their years of experience to use for you.
GET THE MOST OUT OF A LIFE SETTLEMENT
Working with a life settlement broker can help you or your client get the best outcome when selling a life insurance policy. Experienced brokers use proprietary pricing models to determine an accurate, fair market value of a life insurance policy. Brokers can help guide you through the complicated settlement process and answer your questions along the way — all while negotiating the highest offer for your policy.
Do you or your client have a life insurance policy you wish to sell? Contact Life Settlement Advisors to learn more about our services and see if you’re a candidate for a life settlement.
