Life Settlement Transaction Explained When a life settlement offer is conveyed to the policy owner and they accept, the process will unfold along these lines: 1. Offer and acceptance confirmation from institutional buyer will be sent to policy owner. 2. Contract packet will be sent via FedEx to policy owner (life settlement closing contracts are similar to closing contracts on a home—it will be a stack of around 30-40 pages with “sign here� flags). 3. Completing the closing contracts will take about 30 minutes and may require a notary. 4. The contracts will be returned to the funder via an enclosed returned envelope. 5. The contracts will be reviewed for anything missing or insufficient. If deficiencies are found, they will be addressed for correction. 6. Once contracts are confirmed as complete, the funds to the policy owner will be placed in an escrow account. 7. Once the funds are in escrow, change of ownership forms will be filed by the funder with the insurance company. 8. Once the change of ownership is confirmed by the insurance company, the funds will be released from escrow to the policy owner. 9. The policy owner will then have a state mandated rescission period (usually 2 weeks) to change their mind and return the funds from the settlement to the buyer if they wish to cancel the transaction. 10. If the transaction is not rescinded by the policy owner, the settlement transaction is complete, and the policy owner is no longer responsible for premium payments nor do they retain any beneficial interest to the policy.
Here are the parties to a life settlement transaction: 1) Life Settlement Brokers: Life Settlement Brokers are specifically licensed by state insurance departments to act as an intermediary between the buyer and seller of a policy. Brokers will shop cases to buyers looking for bids. A case submission will typically include application, signed HIPAA and insurance releases, policy illustration, medical records, and 2-3 life expectancy reports. Brokers are compensated by taking a commission from the offer before presenting it to the policy owner. Commissions can be as much as 1/3 of the offer and then the broker will negotiate a share of the commission to go to the originating agent. Agents that engage in settlement brokerage
must have the appropriate licenses based on the state where any given policy is domiciled, file reports with state insurance departments where they hold a license, and may have to report settlement brokerage activity with their carriers. Agents engaging in settlement brokerage must also maintain specific E&O coverage which is typically separate from E&O for their agency business.
2) Life Settlement Providers: Life Settlement Providers are specifically licensed by state insurance departments to negotiate and transact a life settlement on behalf of a Finance Entity or any buyer of a life insurance policy. As a licensed entity, the provider can work with brokers and buyers as the administrative and closing agent for the transaction. The Provider can also buy policies directly from the policy owner bypassing the need for a broker or a finance entity to be involved in the transaction. 3) Finance Entities: Finance Entities are investment groups and hedge funds that finance the purchase of life insurance policies in the secondary market. Some will finance for other buyers and some will finance to purchase policies for themselves. Typically, a Finance Entity will acquire policies for a short term and either re-sell them after purchase or will build a portfolio to sell in the “tertiary market�. Finance Entities often work in numerous asset classes and will outsource the purchasing and management of policy acquisition to licensed Life Settlement Providers. LCX Life: LCX Life is the only Life Settlement Marketing Organization (LSMO) in the insurance industry. Our mission is to work with agents, advisors, and our IMO/BGA partners to build a network of Appointed Referral Agents who are educated and supported to offer the life settlement option to policy owners contemplating lapse or surrender. We also work with independent agents, financial advisors, lawyers, accountants, and long-term care industry service providers. With LCX Life, we can rescue thousands of policies every year, and in the process, deliver a recurring revenue stream to your organization. www.lcxlife.com