Life insurance is a tool meant to provide financial security for your family after you pass away. A settlement can provide that security during your life if the premiums have become a burden, or if leaving behind a death benefit is no longer a priority. Settling may allow you to transform your policy into cash, and a life settlement broker can help you through that process.
A settlement broker is a trained professional licensed as required by state law. Their role is to negotiate the sale of your policy to settlement providers, who purchase unwanted policies as investments. By shopping your policy around and comparing offers, they maximize your payout.
What a Life Settlement Broker Does in the Sales Process
The life settlement process has three key players: the policyholder, the broker, and the settlement provider. It’s easy to confuse a broker vs. provider when you’re new to the settlement process, but they serve opposite roles.
A life settlement provider is a potential buyer for your policy. Their goal is to maximize revenue from the products they buy.
A licensed life settlement broker works for you. They are your advocate and representative throughout the settlement process, starting on the day you approach them about a potential sale. Unlike a provider, a good life settlement broker has the ability to price your policy and determine fair market value.
Case Evaluation
The first step is to evaluate the potential sale of your policy, beginning with your basic eligibility. This depends on various factors, including your age, health, policy status, and death benefit.
If you qualify, your broker can help you determine whether selling is the best choice for your interests. Settlements frequently offer the highest value for life insurance policies, but some policyholders benefit more from surrendering a policy rather than selling it.
Buyer Communication
If you choose to sell your policy, your life settlement broker can help you collect the policy and medical information necessary to solicit offers. The broker uses this information to package and present your policy to buyers.
Your broker has the professional experience and knowledge to communicate effectively with provider firms. They can answer buyer questions and provide the right documentation to help make your policy more appealing.
How Brokers Create Competitive Bidding Environments
Your broker’s role is to maximize the value of your life settlement. They do so by marketing your policy to multiple buyers, who submit offers if interested.
Part of a broker’s job is to encourage competing offers to maximize settlement value. For example, if you have a $500,000 death benefit, you might receive three offers up to $100,000. If you work with a broker, they can go back to the lower bidders and update them on the competition. This often results in another buyer outbidding the original high bidder, who can then increase their bid.
This process can yield a significantly higher settlement than if you had offered your policy to a single buyer independently.
Broker Advocacy and Negotiation Support
Should you receive offers for your policy, a broker will present them to you and explain the terms of each. The most common offer is a lump-sum payment equal to a percentage of your death benefit. The average selling price is 20% of that benefit, but offers can vary significantly.
Each buyer has a different method for evaluating your policy’s value, and some buyers may offer alternative options. For example, some might offer to buy a portion of your life insurance policy or structure your settlement payment in a unique way. A broker can explain how each offer works and help you choose the one that best meets your needs.
Finalizing the Transaction
If you choose to accept an offer, your broker will support you in completing the transaction. They can help you or your financial advisor conduct the required due diligence, including a review of the buyer and offer valuation. Your broker will also guide you through reviewing and signing the transaction documents, including the purchase agreement and policy change forms.
Your broker can also explain the process for transferring funds, including how long the proceeds from the sale will remain in an escrow account. Escrow is common until ownership has officially changed, at which point you will receive the proceeds.
Remember that a broker can recommend a life settlement and guide you through the decision-making process, but the ultimate decision is yours. An ethical broker will never coerce you into accepting a particular offer or even selling at all. If you decide at the last minute to keep or surrender your policy, you are free to make that choice.
How Life Settlement Broker Compensation Works
A life settlement broker’s salary is based on commissions from policy sales. Each brokerage has its own commission structures, so it’s challenging to estimate how much you’ll pay. Some sources cite the industry standard as 22% to 30% of the settlement payment amount, but select brokers may charge more.
It’s also possible for brokers to base their fees on the policy’s face value. One cited number is 8% of the death benefit, but remember that the purchase price will usually be less than the total benefit on your policy. A lower percentage doesn’t necessarily mean a lower fee.
You shouldn’t feel that a broker is trying to confuse or trick you. Most states require brokers to disclose their compensation to clients, and there is a widespread expectation of transparency. If a broker doesn’t offer a fee breakdown up front, don’t hesitate to ask.
Make sure you understand all fees the broker will charge and when they are due. Most life settlement companies take their fee from the selling price, allowing you to avoid upfront payments. This reduces your total take from the sale, but your broker will work to get you the best settlement possible.
When Working With a Broker May Make Sense
While it’s possible to sell a life insurance policy directly to a settlement provider, having a broker on your side can help you settle for more. A licensed life settlement broker takes on the responsibility of negotiating with providers and working with insurance companies in exchange for a percentage commission.
Get in touch with Life Settlement Advisors today to find a seller’s broker near you and take the first step toward converting your policy into cash.
