Life insurance policies give policyowners the comfort of knowing that their loved ones will be financially secure after they are gone. But owning one of these peace-of-mind policies can bring considerations and challenges you might not anticipate. Your life insurance policy can:
- Be expensive at a life stage when you have additional medical costs
- Offer insufficient liquidity due to your policy type
- Prevent you from saving or qualifying for long-term care options like Medicaid
- Become unnecessary if your beneficiary’s financial situation changes in your lifetime
Life settlement brokers are one way to sell your unneeded policy for more than its surrender value, providing a crucial cash boost rather than letting the policy lapse. A life settlement broker is a third-party individual who coordinates the sale of a life insurance policy to a qualified buyer in a process known as life settlements. The broker’s goal is to net the highest possible cash value, and in turn, the highest commission for themselves.
With deep expertise in the life settlement industry, Coventry Direct can navigate policyowners through this intricate domain, so that everyone can choose the right path for their needs, goals, and policy. Let’s take a closer look at what a life settlement broker is and how working with these individuals differs from selling directly to buyers.
What is a Life Settlement Broker?
If you’re just beginning to consider a life settlement as an option, you may be wondering: what is a life settlement broker? A life settlement broker is an individual who markets all or part of a policy owner’s life insurance policy to a network of qualified buyers, often called life settlement providers. The broker’s goal and fiduciary duty is to net their client the highest possible sale price by fielding bids. Brokers serve as an alternative to letting your policy lapse: either returning it to the provider in exchange for its surrender value, or selling directly to an independent buyer.
In exchange for their services, the broker takes a commission from the sale proceeds, which they won’t receive unless the sale goes through. This can be a flat fee determined at the beginning of the sale process but, more often, it’s a fixed percentage of the final sale price. Life settlement brokers are therefore incentivized to negotiate the highest possible bid to maximize their earnings.
You might work with a life settlement broker if you’re not concerned with selling your policy quickly, since the auction process can be long and requires multiple bidding rounds. If you don’t feel comfortable negotiating your final sale price, a broker will do this for you by engineering a competitive bidding environment, often with contacts from their private network. Life settlement brokers also absorb settlement valuation and underwriting costs which can be appealing—though they may attempt to compensate by adding on other fees.
Who Does a Life Settlement Broker Represent?
When working to sell a life insurance policy, who does the life settlement broker represent? The life settlement broker represents the policyowner before a network of qualified buyers to provide their client with the highest possible proceeds. The broker is an individual—not a company—bound by a fiduciary duty to serve the policyowner.
Once a broker identifies the most advantageous bid, the policy is sold to the highest bidder, and the broker takes a percentage commission from the final sale price. If no one purchases the policy, the client may pay nothing or the broker’s fees, depending on their policy.
Before a sale is finalized, the broker must file their client’s life settlement contract, application, and disclosure forms to the state’s financial services department for approval by the department’s superintendent. Most states require life settlement brokers to carry a state brokerage license in order to represent a client in a policy sale.
How Much Do Life Settlements Cost With Brokers?
Brokers charge a percentage of the final sale price, so the amount policyowners pay for each policy sale will vary. Some brokers require no upfront fee to be paid, allowing policyowners to walk away for free if the sale doesn’t go through. For sales that do finalize, brokers may charge as much as 30% of the sale price—meaning some policyowners could achieve a high settlement but ultimately not see much of those funds.
If these costs sound too steep, policyowners have a less expensive alternative at their disposal: selling a policy directly to a life settlement provider. Life settlement providers are staffed by life insurance experts ready to help policyowners sell their policies for considerably more than their surrender values and faster than slow auctions. These life settlement providers help sellers with almost any policy type take home more for selling their policy by negotiating competitive pricing terms with no accompanying fees—all while strictly adhering to applicable laws and regulations. To learn more about selling your policy directly to a life settlement provider, reach out to the experts at Coventry Direct to learn whether your policy qualifies.
What Are the Cons Associated with Life Settlement Brokers?
While life settlement brokers may seem a convenient way to sell your life insurance policy, they can also bring difficulties. Brokers:
- Take a commission of your sale price: The dollar amount increases with your policy’s worth.
- Aren’t licensed to purchase policies: Brokers cannot simply buy your insurance policy. Instead, they gather competitive bids from licensed buyers.
- Can take a long time to sell policies: If the sales process is longer than your remaining lapse time, you will be unable to complete the life settlement.
- May lack valuable expertise and experience: Without crucial know-how, the broker may not be capable of getting you through each step of the bidding process.
Policy sales to third-party providers like Coventry First are faster and more lucrative than what life settlement brokers can offer. If you’re interested in learning more about the worth of your life insurance policy, Coventry Direct is here to help and answer questions.
What Is the Difference Between Working With a Direct Buyer vs. a Life Settlement Broker?
Direct buyers purchase your policy at a price that you and the purchasing company agree on. In contrast, when selling with a life settlement broker, the value of your policy is effectively out of your hands; it depends on the size and makeup of the broker’s bidding network and how much their bidders are willing to pay for your policy. The broker also sets the percentage of the final sale they take home, making high returns theoretically possible but difficult in practice.
Once you decide to sell your policy to a direct buyer, your sale closing time is often short—valuable for policyowners facing near-term policy lapses. However, life settlement brokers may take considerable time, managing up to 10 bidding rounds with multiple bidders to select an offer that benefits them.
Life settlement brokers may even lack the formal legal training needed to safely negotiate your policy sale. When working with one of these brokers, you risk being exposed to harsh repercussions for violating state and federal laws and life settlement regulations. Direct buyers like Coventry Direct don’t just buy your policy; they leverage legal and industry expertise and experience to ensure your selling experience is as smooth as possible.
How Does the Selling Process Compare?
The selling process opens with a pre-qualification procedure. Whether you sell your policy through a life settlement broker or to a direct buyer, you’ll need to be at least 65 years old to qualify. Life settlement brokers and direct buyers alike will require you to provide a general health description and complete a medical questionnaire. You’ll then be asked to share details about your policy, such as the policy type, face value, surrender value, premiums, and outstanding loans.
Next, you’ll submit documentation to your broker or direct buyer, providing personal information, insurance coverage, and medical history, including a health statement, medical questionnaire, physician records, and a medical underwriter’s lifespan report.
Here, the selling process for life settlement brokers and direct buyers starts to differ. A broker will attempt to auction your information and documentation to multiple bidders you may not be privy to. This process involves working with multiple potential buyers across several lengthy bidding stages. The broker then closes the sale once they receive an offer that maximizes their commission fee, not necessarily your take-home value.
A direct buyer keeps your information secure by localizing the selling process to you and their company. With greater resources and legal capabilities, they can more effectively manage the selling process from start to finish. They can also make the purchase before a policy lapses at a maximized price the policy owner agrees to beforehand.
Advantages of Working with A Direct Buyer
There are many benefits that make working with a life settlement direct buyer the best way to sell your policy:
- Price: Direct buyers demand fewer fees than life settlement brokers often require.
- Simplicity: Working with a direct buyer frees you from having to worry about red tape and other legal barriers, thereby streamlining your sale and helping you feel more at ease.
- Speed: Selling to a direct buyer is much faster than waiting for multiple bidders while they all vie for your policy, which can expose you to a policy lapse.
- Credibility: Direct buyers can leverage life insurance expertise and legal know-how to tailor your selling experience to your financial and medical situation.
If high insurance premiums have become a hardship, life settlements can offer much-needed relief and liquidity—but brokers may not have your best interests at heart. Working with a life settlement provider (which is a direct buyer) is a quick, profitable, and seamless way to sell your policy and offers much greater returns than surrendering to your insurance provider or letting your policy lapse. You can use this cash to fund medical expenses, boost retirement income, pay down debts, or overcome any other financial constraints to start living your best and brightest years.