A life settlement is a very complex, highly-regulated transaction that involves lots of due diligence, loads of paperwork and, as a result, takes a long time. Some of the mystery can be taken out of the process by knowing who does what.
The parties to the transaction can be divided into three groups: seller’s side, buyer’s side and intermediaries.
In most states, settlement brokers, producers, providers and, occasionally, life expectancy companies are required to be licensed. Insurance companies and escrow agents, like banks for example, are usually licensed independently of life settlement regulations.
The seller’s side begins with a policy owner who no longer wants, needs or can afford a life insurance policy. Where the policy owner and insured are not the same, as in a business owned or trust owned arrangement, both must agree to and be parties to the transaction.
The producer is typically the policy owner’s life insurance agent. Unlike many life insurance transactions, the producer represents the policy owner and only the policy owner, is legally considered a life settlement broker, and acts in a fiduciary capacity.
Since life insurance producers typically don’t handle life settlements on a regular basis, they will call on the services of a life settlement brokerage that has expertise in life settlement transactions to find buyers for the policy. Like the producer, a life settlement brokerage is a fiduciary and acts solely on behalf of the policy owner. By using the experience and expertise of a life settlement brokerage, the producer can fulfill their fiduciary duty to properly shop the policy and maximize the price for the seller.
The key players on the buyer’s side of the transaction are the provider, the investment institutions and the actual investors.
The provider acts as a buyer’s broker and is the primary contact for the seller’s settlement broker. Unlike the settlement brokerage, the provider acts solely on behalf of the buyer with the mission to obtain policies as cheaply as possible.
The provider acts as an aggregator of policies on behalf of one or more investment institutions. Providers acquire policies under several different arrangements.