When Helping A Client Evaluate Settlement Offers, Quality Counts

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If you want to help clients sell unwanted life insurance policies, you should learn to look past the superficial dollar value of life settlement offers, to evaluate all of the many subtle factors that help determine the offers true value.

Suppose your client, Jane Doe, gets what appear to be 2 firm offers for a life insurance policy that has a cash value of $40,000. One offer is for $160,000, from a life settlement firm you know well, and the other is for $200,000, from a firm located by your clients brother-in-law. Which offer should you advise your client to accept?

An inexperienced advisor might say the bigger offer is always the best value. Is that really true?

Of course not.

Jane Doe may already know, deep down, that price can be an unreliable indicator of value.

Maybe her brother-in-law is the same guy who got her a “bargain” room in a hotel that turned out to have shared bathrooms and no hot water. He was also the one that got her a “better” price on a used car, a car that turned out to be a lemon.

But, even though Jane Doe knows that a great price can mask serious problems, she might have a hard time applying that knowledge to life settlements. For her, the life settlement market is a totally new area.

When your client asks for help weighing 2 firm offers, what do you say?

Depending on the circumstances, you might say something like this:

“Ms. Client, I have a fiduciary responsibility to you. That means I am on your side. I want what is best for you. I have a list of reasons why, in a life settlement, a lower dollar number might actually be the higher value. In other words, the $160,000 offer may actually be a better value than the $200,000 offer. Lets go through my list.”

Here is a list of 6 points that you might include in your discussion.

1. “We want an offer that has the safety of an escrow agent.” Whoever is making the offer must put the offer money in the hands of a bona fide third-party escrow agent. If there is not a bona fide third-party escrow agent, the client should not make the deal. No dollar amount is worthwhile if there is a chance the client wont ever see the money.

2. “We want an offer that comes from safe institutional funding sources.” The client must have an offer from an established, stable provider/funder with institutional funds. The client must not accept any offer from anyone where there is a chance the policy might be held by an individual. No higher dollar number is worthwhile if there is a chance the clients policy will be held by one of Tony Sopranos associates.

3. “We want an offer from a provider/funder who has a buy-and-hold strategy.” The client does not want an offer no matter how high if it means that the policy is going to be passed from hand to hand to hand like a home mortgage.

4. “We want an offer from a source that will respect your choice of financial advisors.” Some financial sources make high-dollar offers initially because they intend to get their money back later by using the clients private information to pepper the client with offers for follow-on financial products. Advisors should look for an offer from a source that is focused on life settlements and not on using the clients private financial information to sell follow-on products.

5. “We want an offer from a life settlement broker that is committed to safety, security and privacy best practices with industry leading technology, processes and commitments to safety like errors and omissions insurance.” Safe brokers mean safe transactions. Advisors should help clients find safe brokers.

6. “We want to deal with experienced firms.” The life settlement industry is young and the transactions are complex. The safest transactions tend to be done by the most experienced firms.

What if your client is Jane Doe?

You compare the offers and see that the company making the $160,000 bid is an experienced, buy-and-hold company that provides everything from third-party escrow services to institutional funding.

The company making the $200,000 bid is a new company that gets its funding from mysterious sources and ignores questions about topics such as E&O insurance.

In this case, you can safely tell your client the $160,000 offer is the best value. The $200,000 offer is the equivalent of the “bargain” vacation hotel that has no hot water.

, J.D., is chief operating officer of Life Asset Partners L.L.C., Washington, a life settlement marketing and education firm.


Reproduced from National Underwriter Edition, April 29, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.