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Understanding
Life Settlements

Life Settlements 101

A bit of background

What is a life settlement?

A life settlement is the sale of a US life insurance policy, by the original owner, to a third party for more than its cash surrender value but less than its death benefit. The new owner of the policy, usually an investor, will be responsible for the payment of the premiums and will collect the death benefit when the insured passes away.

There are many reasons why a policy might no longer be needed, such as, the premiums become unaffordable, changes in health or circumstances create a need for cash for medical expenses or long-term care, or simply that the policy is no longer required for the purpose it was taken out for.

When your clients have life insurance policies that, for whatever reason, they no longer want or need, choosing a life settlement as an alternative to lapsing or surrendering might be a better financial decision.

Under US law, a life insurance policy is a transferable asset that can be sold to a third party

Examples of actual policies sold as a life settlement:

  • Male, aged 89. Policy $1m - CSV: $57,119
    SOLD for $250,000
  • Female, aged 73. Policy $5m - CSV: $(217,374)
    SOLD for $560,000
  • Joint policy, insureds aged 87 and 88. Policy $2m - CSV: $14,970
    SOLD for $480,000
  • Male, aged 80. Policy $500k - CSV: $34,617
    SOLD for $81,700
  • Female, aged 97 . Policy $1m - CSV: $2,314
    SOLD for $290,000

Shocking Statistics

  • Around 92% of policies are lapsed or surrendered prior to maturity.
  • $100 billion is lapsed or surrendered annually by over 65s.
  • 90% of seniors who have let a policy lapse would have considered selling had they known a life settlement was a possibility.
Source: Life Insurance Settlement Association

How do I know if a policy qualifies?

If your client is a US citizen or resident, aged at least 70 years or is in very poor health, and the life insurance policy has a minimum face value of $100,000 and was issued at least 5 years ago, it will most likely qualify.

However, knowing a policy qualifies for selling is one thing, understanding the value it might return for your client, is another. In order to be able to successfully advise your clients and manage a policy sale it is important to have a full view of what is being sold and an idea of its potential worth.

If you already understand the saleability of your client’s life insurance policy and are ready to sell, then listing on the LifePolicyAuctions.com platform is quick, easy and completely free.

Your advice could be the key to turning a potential loss into a profit for your client

Learn what a life insurance policy might be worth and if your insured qualifies for life settlements.

If life settlements are new to you and you have clients with policies that you believe might qualify, we have a range of reporting services available to provide the information you need:

Reports available include a Lite Touch LE Estimation providing an indicative life estimation of the insured, a full Medical Underwriting Report and a Policy Valuation Report.

Each service includes a code to facilitate easy upload for LPA auction creation*.

Enhanced auction listing: Auctions created using the upload code provided with the Medical Underwriting Report or Policy Valuation Report will benefit from an LPA enhanced listing. Not available with LPA Lite Touch LE Estimation.

A (free) account is required in order to sell on LifePolicyAuctions.com: there are no charges for listing your policies, whether or not they sell. Ended auctions, with no buyer, can be relisted without having to re-upload.

*Submitting a policy for valuation does not obligate you to sell

Value added services:

Understand the saleability and value of your clients’ policies

ACCESS INDUSTRY REPORTS
What documentation will I need to provide?

When posting a policy for auction, buyers will expect you to provide a range of documents:

Minimum required when first listing an auction:

  • Premium illustration (not applicable for term policies)
  • Premium schedule for term policies
  • Medical records for all insureds

Advisable to upload - Additional documents that will help:

  • Latest annual statements
  • History of premiums paid
  • Policy copy (with policy application, if available)
  • Verification of Coverage (VOC) obtained from the carrier
  • Life expectancy certificate for all insureds

What happens after the auction ends?

LifePolicyAuctions.com will manage the process as far as the point where the auction ends.

An auction can end in a number of ways:

  • coming to the end of its duration with no winning bid.
  • coming to the end of its duration with a winning bid (sold subject to closing).
  • being sold (subject to closing) as the result of an accepted ‘buy-it-now’ or ‘make offer’ bid.
  • being cancelled by the seller.

Should a policy auction end with no winning bid then it can easily be relisted without the need to re-upload.

Auctions that end with an accepted bid are considered to be ‘sold, subject to closing process’.

The closing process:

The closing process is managed directly between the winning bidder and the seller with no further involvement from LifePolicyAuctions.com.

There are a number of documents that are required in the closing process in order to complete a life settlement transaction. Most of these documents will be attached to the life settlement contract which will be issued by the life settlement provider.

Typical documents to expect in the closing process:

  • Proof of ID (owner, insured and beneficiaries).
  • Trust document (if owner or beneficiary is a trust).
  • W9 forms (policy owner and agent).
  • Authorization for Disclosure of PHI (HIPAA) for all insureds.
  • Any applicable Power of Attorney documents.
  • Release of Policy Information Authorization - signed by the insured(s) and owner.
  • Owner and Insured(s) Acknowledgements.
  • Privacy acknowledgement - signed by the insured(s) and owner.
  • Disclosures - (fees/compensations paid to parties involved; premium finance; policy liens or assignments) - advice on which disclosures are required can be obtained from the NAIC or your state department of insurance.
  • Consent forms (spouse, beneficiaries).
  • Continuing contact forms - required to periodically check-in on the insured(s).
  • Letter of competency (usually from the insured’s general practitioner).
  • Authorization to provide a death certificate.

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