Who 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 payment. This payment is typically greater than the policy’s cash surrender value but less than its full death benefit. The transaction allows policyholders to access liquidity from an asset that might no longer be needed or affordable. This article clarifies the specific role of a life settlement broker within this financial process, focusing on who they represent and their responsibilities.

The Life Settlement Broker’s Role

A life settlement broker functions as an intermediary in the life settlement market. They connect policyholders seeking to sell their life insurance policies with potential buyers, known as life settlement providers. The broker facilitates the transaction process from the seller’s perspective, preparing the policy for market and managing interactions with purchasers.

Brokers are distinct from life insurance agents, who sell new policies, and from life settlement providers, who purchase policies. The broker is an independent entity, separate from the original insurance company and the ultimate buyers of the policy. Their role is to navigate the complexities of the secondary market for life insurance on behalf of the policyholder.

Policyholder Representation

A life settlement broker represents the policyholder, who is the seller of the life insurance policy. The broker acts as an independent advocate, working solely in the policyholder’s best interest throughout the life settlement process. This representation is important because the life settlement market can be intricate, involving multiple parties and financial considerations.

Independent representation helps ensure the policyholder receives fair market value for their policy. It also helps them understand the terms and implications of any proposed transaction. The broker operates under a concept of agency, acting on the policyholder’s behalf and according to their instructions. Most states consider life settlement brokers to have a fiduciary responsibility to their clients, requiring them to prioritize the policy owner’s interests.

Broker Duties and Responsibilities

Life settlement brokers owe specific duties to the policyholder they represent. They assess the policyholder’s needs and determine if a life settlement is a suitable financial option. This involves obtaining and reviewing comprehensive policy information and medical records, always with the policyholder’s explicit consent.

A primary duty is to market the policy to multiple licensed life settlement providers to generate competitive offers. The broker must then present all legitimate offers to the policyholder in a clear manner, advising them on the terms and implications of each offer. Brokers are expected to act with diligence and loyalty, prioritizing the policyholder’s best financial interest. Maintaining the confidentiality of the policyholder’s personal and financial information is also a fundamental responsibility throughout the process.

Broker Compensation

Life settlement brokers typically earn their compensation through a commission structure, usually a percentage of the life settlement proceeds. The payment often comes from the life settlement provider, or buyer, once the transaction is successfully completed. This compensation model aligns the broker’s interests with the policyholder’s, as their payment is contingent on the successful sale and the amount secured.

Transparency in compensation is a common requirement, with brokers obligated to disclose their commission to the policyholder. Commissions can vary significantly, often ranging from 15% to 30% of the settlement amount. This fee covers the broker’s efforts in evaluating the policy, marketing it, and negotiating the best possible offer for the policyholder.