According to data from the Life Insurance Research and Marketing Association (LIMRA), demand for life insurance is highest across Generation Z, millennials and Generation X. For Americans closer to retirement, however, the opposite may be true. Policyholders often have equity tied up in life insurance that could be better used to travel the world, remodel their homes or offset the cost of medical issues.
Accessing this equity often means selling some (or all) of your life insurance policy. But how do you get the best return? Here’s how a life settlement broker can help you navigate the market and get the best payout for your policy.
WHAT IS A LIFE SETTLEMENT?
If you decide you no longer need life insurance, you have two options: Cash surrender or a life settlement.
In the context of life insurance, surrendering is the same as canceling your policy. You no longer pay premiums, but you give up the policy’s death benefit and receive the cash surrender value of your policy. The surrender value depends on your policy type and the value assigned to your policy by your provider. For example, a whole life policy typically accrues cash value over time — if you surrender your policy, you receive this amount.
A life settlement, meanwhile, is the sale of your policy to a third-party buyer, also called a life settlement provider. You receive a lump-sum payment that is often much more than your cash surrender value but less than your total death benefit, and the buyer takes over your policy. This means they are responsible for making premium payments, and they collect the death benefit when you pass away.
WHAT IS A LIFE SETTLEMENT BROKER?
A life settlement broker is a financial expert who connects policyholders with potential buyers. Experienced life settlement brokers guide you through the settlement process and advocate for your best interests during negotiations with potential buyers.
Brokers are expert intermediaries. Based on the type of policy you own, its likely value and current insurance market conditions, life settlement brokers bring multiple buyers to the table. This encourages competition, which in turn helps increase the value of settlement offers. Your settlement broker represents your interests throughout the process. In practice, this means they negotiate to find a fair deal, provide advice on the pros and cons of different offers, and ensure that your policy sale complies with state laws and regulations.
BENEFITS OF WORKING WITH AN EXPERIENCED BROKER
Partnering with an experienced life insurance settlement broker offers several benefits.
Customized Settlement Options
Not every life settlement is the same. For example, you might want to sell your entire policy for the highest payout possible or retain a smaller amount of coverage and sell off coverage you don’t need. Another common option is using settlement payouts to cover the premiums on remaining life insurance automatically.
Life settlement brokers create customized options designed to meet your needs.
Expanded Buyer Pools
While it’s possible to sell your policy directly to a provider, this approach is challenging. There’s no centralized record or database of potential buyers, meaning you’ll need to contact prospective purchasers directly and negotiate settlements start to finish.
Experienced life settlement brokers, meanwhile, have access to a network of providers. This increases the number of prospective buyers for your policy and drives competitive bidding, which can lead to higher settlement offers.
Maximized Returns
Working with a broker can help maximize your return. In a direct sale to a single buyer, it’s in the buyer’s best interest to pay as little as possible, so they may significantly undervalue your policy. Because the offer is still higher than a cash surrender, it may be tempting to take the deal. Brokers, meanwhile, understand the life insurance market and how to negotiate in your best interest. They make it easier for you to get the full value of your policy.
Reduced Complexity
Life settlements are complex financial transactions subject to both state and federal regulations. For example, only FINRA-registered financial professionals are permitted to carry out variable life insurance settlements. In addition, settlements of any kind must be fully documented and verified for tax purposes.
Registered life settlement brokers handle all administrative and legal tasks that come with sales and purchases, allowing you to focus on your plans for settlement funds.
Determine Fair Market Value
An experienced life settlement broker will be able to price your policy and disclose what your fair market value is in the secondary market. A direct buyer or Provider will not disclose the fair market value as their business model is buy low and sell high. The direct buyer wants to pay the seller the least amount of money possible as they most likely will sell the policy and the spread is their profit.
SETTLEMENT SUCCESS STORIES
It’s one thing to talk about the benefits of working with a life settlement broker; it’s another to see the numbers.
Consider the case of a retired 74-year-old man with a $1.5 million term life insurance policy nearing expiration. Increasing premium costs meant he could no longer afford the policy and planned to let it lapse. With help from our brokers, he received $45,000 for part of his policy and retained $300,000 in death benefits with no premium payments.
We also helped a terminally ill 53-year-old woman with cancer pay off her debts and have enough left over to enjoy the time she had left. The team at Life Settlement Advisors helped her sell $900,000 of her $1 million insurance policy for $590,000.
GET MORE FOR YOUR POLICY WITH A LIFE SETTLEMENT BROKER
Your life insurance policy is valuable. If you’ve chosen to sell, you deserve to get the maximum amount possible. Don’t go it alone. Work with experienced life insurance settlement brokers to streamline the sales process, generate competitive offers and get personalized financial advice.
Not sure how to sell a life insurance policy? We’ve got you covered. Contact us today.
