There is a “hidden secret” about which life settlement advisors and clients should know, says William Scott Page.
The secret is that there is “ongoing maintenance” after the settlement transaction has been completed, says the chief executive officer of Track-Life, Atlanta.
This maintenance comes in the form of what the industry calls “policy tracking,” says Page. “It is one of the obligations of the settlement contract, and many states require that it be done.”
But it’s a “hidden secret,” he says, because many agents and advisors don’t know about it and/or don’t discuss it with clients before the settlement transaction is completed.
Advisors need to become informed about this process so they can tell their clients, he says.
Policy tracking is typically performed by an administrative service or firm that make phone calls to the insured on the settled contract. The purpose of the calls is to get updates on the insured’s health status, Page says.
There may be other forms of contact, too, such as sending emails, postcards and letters seeking updated status information.
If the insured is too ill or otherwise unable to respond, the contacts are made to a responsible third party, Page says.
The inquiries often seek updates about visits to the doctor, prescription drug changes, and general health. Sometimes, they include updates or verification of address and phone number. The policy tracking service may also seek HIPAA authorization updates, and perhaps access to current medical records, Page says.
Jerry Iwanski, owner of Alternative Senior Financing, Denver, agrees with Page, that the agent or advisor should let the customer know, before the settlement is completed, that this activity will occur–so that there are no surprises.
“I’ve heard horror stories about people who say that they did not know that someone would be calling them and checking up on their health status after the settlement was finished,” says Iwanski, a broker and agent who specializes in settlements.
“My approach is to let them know up front that they will be getting these calls, and I explain why.”
Why do policy tracking
Page says policy tracking is conducted on behalf of the new policyowner, who is the investor that bought the policy and is now making the premium payments.
“The investor needs to know in a timely way when death occurs so that the death claim can be paid to the investor,” says Page.
The investor also needs to know if the insured’s health status has changed, he says. For instance, if the health status improves substantially, that will make the life expectancy longer than projected in the original LE report, so the investor will need to make premium payments for a longer period of time.
“In that case, the investor might decide to write off the case as a bad investment and take it as a loss,” Page says. “Or the investor might decide to try to sell the policy to someone else, in which case the investor will still need the updated information from the tracking service.”
Alternatively, if the insured’s health status has declined more rapidly than expected, the investor will be paying premiums for a shorter period than anticipated. This increases the value of the investment, and that may help the investor make decisions about other investments, Page indicates.