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Life Settlement Brokers

Role of Life Settlement Brokers

Life settlement brokers are play an important part in the life settlement market. Their primary role is to help the policy owner sell a life settlement policy to a suitable buyer for the highest amount possible. It is commonly accepted that life settlement brokers owe a fiduciary responsibility to the policy owner. That is why consumers need to understand everything about life settlement broker's duties, responsibilities, and compensation structures. This should be spelled out in a life settlement broker agreement.

Purpose and Duties of Life Settlement Brokers

Life settlement brokers are essential to consumers who do not have the resources, contacts, and expertise to successfully complete a life settlement or viaticals transaction on their own. But, the duties assumed by individual life settlement brokers vary widely. Some duties are required by regulations but others are "value added" services that go beyond what the law requires. Because some states are unregulated, consumers assume an extremely high risk when they engage life settlement brokers who do not provide a life settlement broker agreement.

Important Provisions of a Life Settlement Brokers Agreement

Consumers should look for these types of assurances in a life settlement broker agreement:

1. A hypothetical valuation model of the policy - before the life settlement broker agreement is signed.
2. Full disclosure of the following - before the life settlement broker agreement is signed:
   1. COMPENSATION - Life settlement brokers should disclose their expected compensation in the life settlement broker agreement based on every feasible pricing scenario.
   2. SUITABILITY - Life settlement brokers should disclose within the life settlement broker agreement how they determine the suitability of a life settlement for a prospective seller.
   3. ALTERNATIVES - Life settlement brokers should disclose within their life settlement broker agreement the alternatives to executing a life settlement and how they weigh the alternatives to determine suitability.
   4. REPLACEMENT - Where replacement coverage is anticipated, life settlement brokers should address within a life settlement broker agreement the risks coverage gaps and how they manage the replacement process without violating insurance regulations, life settlement regulations, and the underwriting guidelines of the replacing insurance carrier(s).
   5. PRIVACY - Life settlement brokers should spell out within their life settlement broker agreement how they use non-public personal financial and health information. This should include a disclosure of the risks associated with the transference of the policy to the ultimate investor and potential subsequent investors.
3. Life settlement brokers should agree to provide an analysis to answer these questions:
   1. How do commissions affect the seller's decision to keep or sell a policy?
   2. How do income taxes affect the decision to keep or sell?
   3. How does the buyer's required rate of return (RRR) affect the seller's decision to keep or sell?
   4. How does the policy cash value impact the decision to keep or sell?
   5. How does the seller' rate of return on invested proceeds impact their decision to keep or sell?
   6. How does the insured's life expectancy impact the seller's decision to keep or sell?
   7. How do the time horizons of prioritized longevity and mortality concerns impact the decision to keep or sell?
   8. How do anticipated future premiums impact the decision to keep or sell?
   9. How can future premium outlays be minimized to make keeping a policy more affordable?
4. Assurances from life settlement brokers that all required LE's will be obtained according to prospective provider and/or buyer guidelines.
5. A description from life settlement brokers of the financial due diligence process followed to screen potential buyers.
6. Assurances from life settlement brokers to help gather and submit required documents such as medical and policy authorization forms, attending physician statements, letters of competency, verification of coverage forms from insurance carriers, medical files, copies of life settlement insurance policies and annual statements, in force illustrations, and trust documents.
7. Assurances from life settlement brokers to contact multiple institutions known for funding life settlements and provide a list of funders they will contact for the initial round of bidding. Additional assurances that first round bids will be solicited from as wide a pool as possible, based on the life settlement broker's knowledge and experience about which types of policies each prospective bidder prefers.
8. A description of life settlement brokers bidding processes with the assurance to solicit multiple rounds of bids and to promptly disclose all bids received.
9. Assurances from life settlement brokers to review all paperwork to assure accuracy and compliance.
10. Assurances from life settlement brokers to not allow key deadlines to expire.
11. Assurances life settlement brokers are not controlled by a provider or buyer, or that the broker, provider and buyer are not under common control.
12. Assurances that life settlement brokers maintain appropriate errors and omissions insurance.