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  • What is the transaction process for a life settlement?
  • August 9, 2013
  • Tony Steuer

    By Tony Steuer, CLU, LA

    Selling one’s life insurance policy for a life settlement is a good decision if the insured has been diagnosed with a terminal illness or their existing policy isn’t performing as expected.

    Once you have decided that selling your life insurance policy for a life settlement is a good idea, you will need to go through the transaction process to make this happen.

    Information provided below helps to explain this transaction process.

    Application

    After choosing proper presentation to settle a policy, the policy owner must fill out an application and provide proper documentation – policy copies and medical records.

    Don’t be afraid to deny an offer that doesn’t fit your needs. This is the time to shop around for the best deal.

    Documentation

    The settlement broker or provider will then review the documents. Settlement companies can work with the advisor or directly with the policy owner.

    Review

    The settlement company submits the medical records for review by an independent life expectancy company, whom calculate the probable life expectancy using actuarial and physician experts.

    Analysis

    At this stage, each settlement firm calculates the market value for their portfolio. Other companies may consider different factors. If the policy had no market value, the process ends.

    Offer

    Having determined that the policy has market value for a settlement, the provider relays the offer to the policyholder. If the offer is declined, the policy owner can seek other offers from other settlement providers.

    If working with a life settlement broker, the broker must seek offers from different providers and present all offers to the seller of the policy.

    Closing Package

    If the policy owner accepts an offer, the provider that made the offer sends a closing package formalizing the transaction. The policy owner must review and sign this package. The funds for settlement transactions are then placed in an escrow account.

    Notification

    When the signed documents are returned, the insurance company is notified of the change of policy ownership to the new owner, the provider.

    Funds Transfer

    Upon written verification of the change of ownership, the escrow agent releases the settlement payment to the seller of the policy.

    The above information regarding transaction process is from the “Life Settlement Basics” publication (2008), according to the “Life Insurance Settlement Association”, which is the trade association for the life settlement industry and associated businesses.

About Tony Steuer

Noted insurance author Tony Steuer has spent over 25 years in the life insurance industry. Steuer’s leadership roles include serving on the California Department of Insurance Curriculum board and the National Financial Educator's Council Curriculum Advisory Panel as well as having served as President of the San Francisco Chapter of the American Society of CLU & ChFC, President of the leading Life Insurance Producers of Northern California, and as a board member of the San Francisco Life Underwriters Association. Mr. Steuer is the author of Questions and Answers on Life Insurance: The Life Insurance Toolbook, The Questions and Answers on Life Insurance Workbook and The Questions and Answers on Disability Insurance Workbook - the first two were awarded the “Excellence in Financial Literacy (EIFLE) Award from the Institute of Financial Literacy. Steuer holds a Chartered Life Underwriter (CLU) designation and also holds the Life and Disability Insurance Analyst License, a designation that is held by less than thirty people in California.

Creative Commons License
Questions & Answers on Life Insurance by Tony Steuer, CLU, LA, CPFFE is licensed under a Creative Commons Attribution 3.0 Unported License.

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