CHAPTER 3. COMMON LIFE SETTLEMENT CONCERNS
In the early days, the business of life settlements was not a well-regulated one. Deceptive brokers could take advantage of people without fear of punishment. Now, though, life settlements are strictly regulated in 43 of 50 states, as well as Puerto Rico, representing more than 90% of the US population. Some of the states which don’t regulate life settlements do regulate viatical settlements. In general, the trend is towards stricter regulation, which in this case is good for the consumer because it makes the process safer, more transparent, and gives the seller more recourse if something goes wrong or is done wrong by another party. That said, people usually have three main concerns about life settlements. Let’s address them.
Historically, the commissions taken by brokers in life settlement deals used to be much higher and were often disclosed only after the deal was done. In some cases, unethical brokers took 50% of the settlement amount from seniors who were desperate to sell their policy and get some cash. Because of this kind of practice, the life settlement industry got a bad name and reputation, with seniors who rightly felt cheated warning their friends against engaging in life settlements. Those days are in the past, however, since states which regulate life settlements place a 30% cap of commissions fees and require the broker to disclose their commission upfront, before the process of selling the life insurance policy even begins.
Another common concern is privacy. Since an integral part of the life settlement process is a life expectancy estimate provided to the potential buyer by life expectancy underwriters, it is necessary to provide documents containing sensitive data, such as medical records, as well as insurance records. Potential sellers are rightfully concerned about this kind of information getting out. Nobody other than the life settlement provider (who will be the buyer in most cases) and the life expectancy underwriting company should see or have access to these documents. Make sure to get that in writing. It’s not in their interest to leak your information, but getting this assurance in writing will help provide peace of mind regarding privacy concerns.
- Profiting off of death
Unease with others profiting from death is a less practical concern, but a common one nevertheless. People feel wrong about the idea that someone might profit from death – especially their death. That is understandable, but not a helpful way of looking at the issue.
Instead, you can consider that both sides can profit from a life settlement – the seller receives a cash payment upfront, but the buyer can only collect their (potential) profit only after the previous owner of the life insurance policy passes away. The economic rationale behind a life settlement is similar to that of annuities, which are common financial instruments where the seller of an annuity also stands to profit upon the passing of an individual.
Furthermore, there has never been a case of foul play reported in connection with a life settlement, if that’s what you’re worried about. You shouldn’t sell to individual private investors in any case – instead, you should deal with the larger and more reliable institutional buyers. Ultimately, the buyers may profit from their bet – but then again, you might outlive all the expectations and then you would be the one profiting from selling a life insurance policy that would have otherwise been a weight around your neck.
INTRODUCTION TO LIFE SETTLEMENTSCHAPTER 2.
LIFE SETTLEMENT COMPANIES – BROKERS AND PROVIDERSCHAPTER 3.
СOMMON CONCERNSCHAPTER 4.
WHO QUALIFIES FOR A LIFE SETTLEMENT?CHAPTER 5.
HOW MUCH IS MY LIFE INSURANCE POLICY WORTH?CHAPTER 6.
ALTERNATIVES TO LIFE SETTLEMENTSCHAPTER 7.
THE LIFE SETTLEMENT PROCESS