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Ask the expert: Who are the settlement intermediaries?

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The question was: Who are the life settlement intermediaries and do they all get compensated for their services in executing the transaction?

The answer is: Between the life settlor and buyer of the life settlement policy, there are usually three layers of intermediaries.

Each of the following requires a commission for their services and role in the transaction: 1) the life insurance agent, who has the customer relationship with the policyholder and 2) the life settlement broker, both of which are “sell side” transaction participants; and 3) the life settlement provider on the “buy side” of the process.

“The compensation for all three of these parties gets funded from the gross life settlement proceeds of course. However, the life settlement provider, working for the investor, negotiates its compensation with the life settlement buyer.

In theory, the life insurance agent and the life settlement broker, who are representatives of the policyholder, must obtain an agreement with the settler for their compensation. However, this does not always happen when life settlement brokers negotiate their compensation with life insurance agents, or in worse scenarios, where the life settler only knows the net amount of the life settlement proceeds, but not the amount of the intermediaries’ fees.

There are many operational redundancies in the life settlement transaction, especially in gathering and communicating relevant transaction information. Life settlement brokers and providers usually each have their own versions of a life settlement application that a policyholder must complete. Sometimes life insurance agents, life settlement brokers, and life settlement providers will each procure separate life expectancy reports for an insured….

Life settlement providers may ultimately combine with wholesale life settlement brokers. The bottom line is that the amount of compensation paid to life settlement intermediaries must and will be reduced.

Source: This is an excerpt from Chapter 13, page 249, of Life Settlement Planning, a 2008 book in the Tools & Techniques series published by The National Underwriter Company, Cincinnati, Ohio, which also publishes Settlement Watch. The co-authors are: Stephan R. Leimberg, Caleb J. Callahan, Bryan T. Casey, James Magner, Barry Reed, Lawrence J. Rybka, Paul A. Siegert. read more about this book


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