When representing a client, any good independent life insurance producer should take the time to find the best solution to fit their client’s needs. In order to fulfill this responsibility, producers typically cast the widest net possible to find the right product at the right price point to make the client happy.
When producers enter into the life settlement market, many continue to utilize this familiar strategy. While this is a successful strategy when representing a client in other avenues of the insurance industry, this is not the case for life settlements.
Compared to other branches of the insurance industry, the life settlement market is an extremely small community. During the origination process, a producer may work with a life settlement broker to obtain an offer from a life settlement provider. The life settlement broker sends the potential life insurance policy to as many life settlement providers as possible in order to negotiate the highest possible offer for the seller. While it seems to make sense to use many life settlement brokers to get the policy in front of as many life settlement providers as possible, this is not the case.
As a regulated industry, there are no secrets to who is and who is not a life settlement provider. Due to this openness, any reputable life settlement broker both knows and works with all life settlement providers. When a producer works with multiple life settlement brokers, the life insurance policy will be submitted to the same providers multiple times. This is problematic and can potentially cost the policyowner money.
On a daily basis, life settlement providers receive a large volume of policies to process and evaluate. Many factors go into which policies will receive a bid and which will not. Aside from the quantitative aspect of this process, the life settlement provider also weighs the likelihood of a successful closing process. A file that has been received many times shows a lack of control by the life settlement brokers. Many life settlement providers enter low bids or pass all together on files they may have otherwise bid on due to the apparent lack of control and the potential delayed closing these files usually create. In the eyes of the life settlement provider, receiving the file from multiple brokers is indicative of a longer closer time due to a lack of ability to obtain documentation from the seller.
If a producer decides to utilize a life settlement broker to aid in the life settlement process, there are a few steps that should be taken to maximize value and ensure a smooth transaction.
- Pick one life settlement broker and stick with that company.
Find a broker that is well established and willing to put the proper effort into the file that your client deserves. It is expensive to underwrite a file, and an unwillingness to share the expenses shows certain companies are purely looking for easy wins.
- Confirm the life settlement broker is fully licensed in the appropriate state.
If the broker is not licensed in the appropriate state, then that company will have to use another life settlement broker, potentially resulting in multiple issues for your client. When a life settlement broker commits its financial resources, it ensures that it will do everything possible to both protect your client as well as generate the highest possible offer.
- Make sure the broker acts transparently, regardless of whether state law requires it.
While some states are unregulated or do not require commission disclosure, it is best practice to make such disclosure. Both you and your client should be aware of how much everyone is making in the transaction. You should also ensure that your client sees all bids received on a file. It is the client’s decision as to which offer is accepted.
- Ensure the life settlement broker only sends files to life settlement providers.
There is no value added for a broker to send your client’s information to other intermediaries or unlicensed organizations. All reputable life settlement investors utilize life settlement providers for origination. While some life settlement brokers may claim they have “private sources,” this is usually a ploy to get access to your client’s information.
Navigating through the life settlement industry can be a tricky endeavor, yet it has the opportunity to bring your client added value to an unwanted life insurance policy. Maintaining and building a strong relationship with your client is paramount to your business. If you choose to utilize a life settlement broker instead of working directly with life settlement providers, taking the right steps will not only strengthen this relationship, but will also bring the fullest value to your client’s asset.
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