Life Settlement Broker
Life settlement is a financial activity wherein the life insurance policy holder can sell its policy at market value (market value being greater than the surrender value) to a third party thereby having immediate cash instead of waiting for the maturity of the policy. The third party profits at death of the insured by collecting more in death benefits than were actually paid out.
What they do?
However, for the insured, who are normally above 65 years old, it is difficult to find a right buyer and then to negotiate a price. In such cases, Life settlement brokers come in for the rescue. Life Settlement brokers are professionals who bring in both the insured (policy owner who is the buyer) and the investor who is the seller together and helps to strike a deal which is best for policy owner. The Life settlement broker generally tends to bring in more then one buyer to provide the insured choices as well as negotiation power. The broker also helps to go through the legal and documentation process. The life settlement broker charges a fee for his services.
How to find a good one?
While choosing a Life Settlement broker you need to keep the following things in mind:
- Always go through your agent since he is more experienced in this area.
- Always select a broker who has relevant years of experience in the area of life settlement.
- Do a preliminary research on the broker before finalizing one.
- State your financial requirements clearly to the broker and the broker should clarify how he is market your policy.
- Make sure that you get good number of bids for your insurance policy.
- The broker should maintain enough transparency while doing the transaction.
- The fee should be clearly stated and explained to you.
- Your broker should adhere to National Association of Insurance Commissioners (NAIC) Standards.
- The broker is licensed.
- When you sell out your policy you also have to provide many personal data. Your broker should maintain the privacy.
- Last but not the least, your broker should carry emission and omission certificate.
Fee structure of the Life Settlement Broker:
The fee charged by Life settlement broker varies among brokers but generally they follow one of the three fee structures stated below:
- Percentage of the face value of the insurance policy
- Percentage of offer or settlement which the broker strikes for you.
- Percentage of value created which is a percentage on the difference between the offer price and surrender value.
The first and second methods are not the best choice for the policy owner and mostly the policy owner goes for the third option.
Regulation and licensing of life settlement broker:
There are not many regulations governing this kind of settlement and the brokers dealing with it. National Association of Insurance Commissioners (NAIC) has formulated a model act which is basically more guidelines or standards which brokers should follow while dealing with it.
As far as licensing is concerned, there is no national or federal regulation asking for licensing of the brokers but only state licensing is required. Licenses in most of the states are provided for a fee and not much regulation is laid down for the eligibility and criteria for licensing.