What Does a Life Settlement Broker Represent?

A life settlement involves the sale of an existing life insurance policy to a third party for a cash sum greater than its cash surrender value but less than its full death benefit. This financial transaction offers policy owners an alternative to lapsing or surrendering a policy they no longer need or can afford. A life settlement broker serves as an intermediary in this process, connecting policy owners with potential buyers in the secondary market.

The Broker’s Role

A life settlement broker represents the policy owner, acting in their best interest throughout the transaction. The broker determines if a policy qualifies for a settlement and assesses its potential value. They gather documentation, such as policy information, medical records, and policy illustrations, to present a case to potential buyers.

The broker markets the policy to multiple licensed life settlement providers to generate competitive bids. This competitive bidding process aims to secure the highest possible offer for the policy owner. Brokers explain the life settlement process, terms, and implications to the policy owner, ensuring they understand the transaction.

Brokers negotiate offers on behalf of the policy owner, striving to maximize net proceeds. They provide guidance through the paperwork and facilitate the closing process, which involves transferring policy ownership and disbursing funds. A life settlement broker operates under a fiduciary duty, prioritizing the policy owner’s financial well-being with loyalty and care.

How Brokers Earn Fees

Life settlement brokers are compensated through a commission, which is a percentage of the life settlement proceeds. This commission is paid by the life settlement provider at the close of the transaction. The broker’s fee is deducted from the gross offer amount before net proceeds are paid to the policy owner.

The commission structure ranges from a percentage of the death benefit or a percentage of the gross purchase price. While specific fees are negotiable and subject to disclosure, commissions can reach up to 30% of the settlement payout. State regulations govern the transparency and limits of these fees to protect policy owners.

Licensing Requirements

Life settlement brokers are licensed professionals, regulated at the state level. Licensing requirements vary across jurisdictions but involve criteria to ensure competence and ethical conduct. Prerequisites include completing pre-licensing education, totaling 20 to 40 hours of instruction, and passing a comprehensive licensing examination.

States require applicants to undergo a background check, including fingerprinting. Some states may also mandate that applicants hold an existing life insurance producer license for a minimum period before applying for a life settlement broker license. State insurance departments or financial regulatory bodies oversee these licensing processes and ensure ongoing compliance with industry standards.

Steps to Engage a Broker

Engaging a life settlement broker begins with the policy owner making initial contact. The policy owner provides preliminary information about their life insurance policy, including its type, face amount, carrier, and health status. This data helps the broker assess the policy’s potential for a settlement.

The broker undertakes an evaluation of the policy, requesting documentation like medical records. Once the policy is assessed, the broker approaches multiple licensed life settlement providers to solicit competitive offers. The broker presents these offers to the policy owner, detailing the gross amount, fees, and estimated net proceeds.

If an offer is accepted, the process moves to closing, where the broker assists with finalizing paperwork. This includes transferring ownership of the policy to the life settlement provider and arranging for the disbursement of funds to the policy owner. The entire process, from initial contact to fund disbursement, takes several weeks to a few months.