Recent developments in the Life Settlement market have many people thoughtfully considering the process of selling a life insurance policy. We believe it would be useful to gather some of this discussion in one place to help understand why so many people are talking about this now, and what the implications are for policy owners.
On WealthManagement.com, Charles L. Ratner recently suggested that the life settlement “discourse has to move on from marketing platitudes to practical guidance for policyholders and their advisors.” He also stated “that means less talk about why to sell a policy and more about how to sell it.”
As industry veterans with over 20 years of experience, we could not agree more. The Life Settlement market has matured in many beneficial ways, but we must be careful not to conflate the idea that selling a policy often makes analytical sense with the fact that this market is still inefficient and outcomes vary widely depending on your approach.
If your intention is to maximize the value of a policy, your approach simply must include shopping the policy to solicit multiple offers. You would do this with any other significant asset such as a house or car. So why do people consider skipping this step in the value chain when selling life insurance policy?
Financial Industry Regulatory Authority (“FINRA”) recently weighed in on this idea in their article What You Should Know About Life Settlements. With the stated goal of working every day to ensure that everyone can participate in the market with confidence, FINRA cites the difficulty of getting a fair price in the Life Settlement market. Their conclusion being “the best way to make sure is to shop around.”
So, if the best advice is to shop around, what is the best way to shop around?
The National Association of Insurance Commissioners (“NAIC”) provides expertise, data, and analysis for insurance commissioners to effectively regulate the insurance industry and protect consumers. They suggest “if you don’t use a life settlement broker, comparison shop on your own.”
As experienced brokers ourselves, we are confident in saying that utilizing a professional broker remains the best approach to shopping a life insurance policy. Certainly, you could attempt to gather and underwrite all the necessary documents to solicit offers on a policy. You could contact the department of insurance in your state and reference a list of licensed buyers for your policy and then attempt to negotiate with all of them. You might even be tempted to call the people on the television advertisements and trust that they will put your interests in front of those of their investors. You could undertake all the necessary expenses related to preparing to sell a policy by yourself. But, if you truly want to understand the nuances of life insurance policies, medical underwriting, and Life Settlement negotiations you will be best served by hiring a broker to perform these services professionally.
And we aren’t the only ones with this perspective.
The Life Insurance Settlement Association, a trade organization with a mission to “advance the highest standards of practice” clearly states that “most settlements are conducted through a broker, who can then solicit multiple competitive bids on behalf of the insured.”
So when you are ready to value a life insurance policy, look to SBA to increase the competitive bidding and reveal the best outcome for any policy.