A life settlement is usually accomplished through the efforts of a number of market intermediaries.
Participants in a life settlement transaction generally include:
- The owner of a life insurance policy or the insured individual whose life is the subject of the life insurance policy
- A producer who may be a financial advisor or an insurance agent
- One or more life settlement brokers who may also be licensed as insurance agents
- One or more life expectancy underwriters
- One or more life settlement providers who typically represent the party acquiring the policy
- One or more investors
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There are nine key steps associated with the life settlement process. These include the following:
Step 1 | Need Realized
The consumer realizes a need or an advisor suggests to the consumer that he/she can sell the policy.
Step 2 | Application
The policy owner completes the settlement application and provides necessary documentation.
Step 3 | Documentation
The settlement provider acquires supporting documentation that verifies insurance and medical status. Settlement companies can work with either the advisor or directly with the policy owner.
Step 4 | Review
The settlement provider’s insurance and medical experts review the file, determining its ultimate viability, including a review for potential fraud. Companies will competitively bid on the purchase of an existing policy based on the insured’s current age, state of health and the overall economic environment.
Step 5 | Policy Match
The settlement provider determines suitability for sale, and matches the policy for appropriate funding. At this point, the settlement company can also determine that the settlement does not qualify, which ends the process.
Step 6 | Offer
The settlement provider relays the offer to the client’s advisor or ultimate buyer. If the offer is declined, the policyholder can seek other offers with other settlement providers.
Step 7 | Closing Package
If the offer is accepted, a closing package is delivered to the advisor or client for review and signatures.
Step 8 | Notification
The signed documents are returned and the insurance carrier is notified.
Step 9 | Funds Transfer
Upon written verification of change of ownership, settlement funds are transferred to the selling policy owner from the Trustee’s Escrow Account.
When the transaction is complete, the buyer – or life settlement provider – becomes the new owner of the life insurance policy, pays future premiums and collects the death benefit when the insured dies. The proceeds of the sale can be used in any manner the seller sees fit.
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