For many years, policy holders have wanted to sell unneeded life insurance, via life settlement contracts, but this was done in a way that was not beneficial to the client or the advisor. A new method has been introduced which will mitigate abuse of the life settlement broker who may not fulfill his fiduciary responsibilities. The life settlement contract can be placed for auction to offer the best price on the life settlement sale.
Life Settlement Contracts in Retirement Planning for Auction
To understand how these sales are made, a life insurance policy holder must first be aware that a life settlement contract refers to the sale of a current life insurance policy and the sale is to be made for cash gains. There are many people in the country who still have life insurance and really have no need for it. This is especially true for those who are over the age of 65.
If these individuals have a cash value in their policy, they have the option of giving up the life insurance and receiving the value for the policy even if it is inside an irrevocable trust. While this is the route many people take, there is also another option. These policies could be sold to a life settlement agency. When this is done, the individual can receive more money and, in many instances, for a much greater value, thereby, maximizing their returns of the life settlement contract. If the individual has a policy that is term life, they could let the policy expire and then make the decision to sell it for cash.
Current Sales Model for Selling Life Settlements
In most cases presently and in the past, these policies have been sold with very little regulation. Financial advisors will often turn to a broker who deals with life settlements. These life settlement brokers will take the time to shop around to determine the value of the policy. They will also collect some information on the life insurance policy holder, such as medical facts.
When using a life settlement broker, the life insurance policy holder and the financial advisor will not have much knowledge regarding the number of buyers the broker will be contacting. They will also not know what the final price of the policy is. This means that most life settlement contract brokers will probably make quite a bit of money on these policies because they do not disclose all information to the client or the advisor.
There have been many reported cases of these life insurance policies being sold where the broker’s commission exceeded what the life insurance policy holder received. The broker can receive manipulate bids by not seeking sufficient bidders, extra side commissions, set the prices of the life settlement contracts, etc. Why does this happen? Because there are no legal, governmental regulations on the sale of the life insurance policies. This all results in very little trust within the industry and this is an issue that all senior life insurance policy holders should be aware of. This is abusive and financial advisors and life settlement brokers are not fulfilling their call of fiduciary responsibilities.
Auction-style of Life Settlement Contracts
This is a new model that is being used as a purchasing system for life settlement contracts. It involves the life insurance policy holder getting full disclosure and, in this case, will not, in any terms, violate the financial advisorï¿½s fiduciary responsibility to an individual.
The sale is similar to items being sold on eBay like an auction item. When someone is selling an item on an auction site, the seller will often set a price that will serve as a initial price and this price will expire within a set amount of time. Potential buyers will see the item and begin the bidding process. The final result is that the highest bidder will get the item. The life settlement industry has adopted this type or selling and purchasing method.
The method that is used by the life settlement industry is very similar to the eBay auction concept. The first step is to locate an individual who has a life insurance policy they wish to sell. Financial information on the insurance policy and medical facts of the insurance policy holder will then be collected. The life insurance policy will then be appraised to determine the maximum selling price. It is then placed up for auction and the policy will be sold to the highest bidding individual.
During this process, the buyer of the policy will have access to all of the medical and financial data of the life insurance that is gathered. However, it should be known that this information is private and no life insurance policy holder names will ever be revealed. The reason buyers even get the information is so they can do their own research to determine what they wish to bid.
Pros of Life Settlement Contract Auctions
Using this new life settlement contract auction-style process will benefit insurance policy holders because they know they will be getting the best possible price on the policy. They also know that the policy will be made available in an open market, so there is no question as to whether life settlement brokers are skimming off the top of the sale and not fulfilling their fiduciary responsibilities. The financial advisor will also win in this situation. They will remain in compliance and there will be no question of violating fiduciary duties of any party. Under the current and past processes for selling the life insurance policies, advisors faced the possibility of multiple lawsuits for violation of their duties. Now, that possibility is eliminated and this creates a winning situation for all involved.
qPlease contact Estate Street Partners at (888) 938-5872 or, if you are calling in the Boston, MA region, please call us at (508) 429-0011 and see how we can protect your assets and maximize your returns in retirement.