Life Settlement Transactions Now More Mainstream, Secure
The business of life insurance settlements has a colorful history. It has become a multibillion-dollar industry in just over a decade. What's undeniable is that the business has changed dramatically, and those of us in the industry see the issues and problems of the past as ancient history.
However, there is still a percentage of insurance agents who remain skittish about settlements because they think the transaction might be risky or they recall problems that have occurred in the past. Selling a policy has become a safe bet due to three main factors.
1. The industry becomes more heavily regulated every year, and policy owner protections are always a priority.
2. The policy owner receives immediate cash through an escrow system similar to that of a real estate transaction.
3. There are other protections, such as the right to rescind the transaction during the days immediately following the agreement.
When this industry began, we primarily served terminally ill individuals who were vulnerable by circumstance. We worked with regulators to create rules and procedures to protect these policy sellers, and many of those protections remain in effect today. Even though a life settlement is more of a financial decision than before, we do everything possible to ensure that policy sellers and their beneficiaries are protected.
The policies and procedures that were created for transferring funds to the policy owner make it as safe as a typical real estate transaction. When a home is sold, funds are held by an escrow agent who is responsible for paying closing costs, satisfying the banks, and ultimately handing over the proceeds from the home sale to the seller. This system, which has been honed and regulated by the real estate industry for years, serves as the model for the life settlement transaction: The insurance policy is held in escrow until the funds to purchase it are received. Once the parties have met their obligations, the escrow agent sends the proceeds of the sale to the policy seller. This system is the most unimpeachable part of the life settlement industry. And to my knowledge, a policy seller has never failed to receive prompt payment for a sold policy.
Lastly, policy sellers have the ability to change history, albeit in the short term and depending on where they live. Much like a real estate transaction, a life settlement can be rescinded by the policy seller within a few days (usually 15, but the law varies from state to state). For policy sellers who change their mind, this is the ultimate safety net.
Time to reconsider?
Aside from issues regarding seller protections, some agents question whether or not a settlement is a sound financial decision for their clients. For starters, we always advocate that clients take a big-picture view of the settlement transaction. The best prospective client is one who is making an objective decision regarding the value of a life insurance policy and whether it still benefits them financially. We are looking for individuals who no longer need or can no longer afford their life insurance coverage. The life settlement has to make sense for them. If they are planning to let their insurance lapse or simply take the cash surrender value, they are doing themselves and their family a disservice by not considering a life settlement.
As the life insurance settlement industry continues to grow, evolve, and become more mainstream, agents can feel confident that seller protections will be enforced.
Wm. Scott Page is president and CEO of The Lifeline Program. Founded in 1989, The Lifeline Program is a registered trademark and trade name of Wm. Page & Associates Inc., one of the first and largest providers of life insurance settlements in the U.S. For more information, contact The Lifeline Program at 800-252-5282 or visit www.thelifeline.com.
