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Life Health > Health Insurance > Life Insurance Strategies

Feature: What and when to tell clients about settlement policy tracking

By Linda Koco

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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.

How many contacts

Some states mandate that the post-settlement communications be done on a specific schedule, say every three months, Page says.

But policy tracking is also done on policies settled in states where there are no mandates, he points out. For that reason, advisors in all states should be discussing post-settlement communication with their settlement customers, he says.

Iwanski, the agent, says the frequency of contact depends on the health status of the insured and varies from provider to provider.

How to broach the topic

Page says some agents are reluctant to talk about this ongoing post-settlement communication, because it opens up discussion with the customer about mortality and about how long the insured is likely to live, and that can be uncomfortable.

But, he says, if this part of the transaction is “sugar-coated” or not even discussed before the policy is sold, the customer may not realize it is an obligation of the contract. Then, when the policy tracking contacts start, the customer may be confused or view the contacts as intrusive.

For his part, Iwanski says he has no trouble broaching the subject with clients during the pre-settlement discussions. “It’s easy to talk about, once you’ve already discussed the life expectancy report and why those are done,” he says.

He typically includes a family member or other trusted person in the discussion, particularly if he has any lingering concern about the insured’s competency or ability to remember. That way, should the insured forget or be too ill to respond later on, “someone who is close to the insured will know and understand,” he says.

Page offers some other ideas for advisors, too:

–Point out that communicating about the insured’s health status “is a post-settlement obligation.”

–Explain the need for the information in a rational way, and stress that the process is not intrusive.

–Discuss how life settlements involve a longer and more involved relationship that just selling the policy. It involves an ongoing relationship with the tracking firm or administrator and is “until death do us part.”

–Point out how the ongoing post-sale communication is “the trade-off for being able to sell the policy and get the money right away.”

At his own firm, Page says the callers are either registered nurses or social workers. They are trained to make contact in a friendly way that fosters relationship-building with the insured, he says,.

If the insured and family are educated in advance about the communications, the whole process goes easier, he maintains. “Imagine what would happen if a husband gets these calls about his wife, or family members get them about their parents, and they don’t know anything about why that’s happening.”

Iwanski concludes: “Everything that happens in the life settlement process should be transparent, and that includes what happens after the transaction is completed.”

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