In a life settlement transaction there are two sides that come to the table: the seller and the buyer. Typically, each party is represented by a life settlement professional. Providers represent investors who want to buy policies and brokers represent policy owners who want to sell their policies.
It is not uncommon to hear providers suggest that clients and life insurance producers do business directly with them without the help of a life settlement broker. But taking this advice from a provider is much like asking a fox how to protect the hen house.
Providers represent investors and are duty bound only to them. A provider gets paid by acquiring policies for investors and their job is to acquire them at the lowest possible cost. The fewer competitors they have for a policy, the better chance they will have to acquire that policy at a bargain price. In addition, their compensation may be enhanced by acquiring policies cheaply.
None of this makes them bad people; it just means that you and your client’s best interests are not aligned with theirs.
Life settlement laws provide that an insurance producer who assists a client in selling a policy in a life settlement takes on the role of a broker. Unlike the initial sale of life insurance, in the life settlement world a producer/broker owes a fiduciary duty to the client.
Part of that duty includes best efforts to maximize the sales price of the client’s policy. Because a life settlement transaction is not an everyday event for most producers, life settlement brokerages are frequently used by producers to assist them in the sale of their clients’ policies.