What is the Life Settlement Process?


what is a life settlement

Life Settlements are complex transactions and require specific knowledge and expertise. Like any large complex transaction (e.g real estate) it's best to have top advisors on your side. One good way to verify that the professional is an expert and adheres to the highest standards is to check that he or she is a member of the Life Insurance Settlement Association (LISA).

Seniors should involve their families in the process of planning life settlements and life insurance in general. Trust is of paramount importance in choosing professional help. A good company that is experienced with life settlements will be prepared to present and discuss a variety of options and implications with the family and their financial advisors and make sure that everyone is confident and fully understands all the options before the plan is executed. This includes recommending when a life settlement is not in the best interests of the family.


Choose a Professional Who is Experienced in Life Settlements


The life settlement professionals are the people that will present the case file and negotiate the sale of the life insurance policy with the pool of institutional investors some times up to 30 firms. Professionals work on behalf of the policy owner to get the absolute best deal possible. They prepare the necessary documents for presentation of the policy to investors and negotiate the best deal. It is their duty to ensure that everything is handled confidentially according to the strict privacy and fiduciary laws that govern Life Settlements.

Lawyers and Escrow companies also play a role in the life settlement process. However your life settlement professional plays the pivotal role and orchestrates the whole transaction. It is critical to clients to have their life settlement professional represent them in negotiations rather than the entity that is buying the policy. Just like in a real estate transaction, it is far better to have your agent represent you rather than the other party.


Steps Involved in Making Life Settlements


  1. Select an experienced life settlements professional to handle the process for you. (See "How to choose a good Life Settlement professional")

  2. Sign authorization forms for the life settlement professional to gather your medical records and obtain current policy information from the life insurance company. Special Note: NO MEDICAL EXAM IS REQUIRED FOR LIFE SETTLEMENTS.

  3. Two or more life expectancy appraisal reports will be ordered from nationally recognized medical actuarial service providers.

    (The life expectancy appraisal is a critical element in determining the policy value of Life Settlements).

  4. An informal policy valuation study is developed using the policy ledgers from the insurance company and the life expectancy appraisal reports. This information is input into special software that predicts valuations of life settlements at various investor capitalization rates. This can give indications of value before the actual negotiations begin.

  5. The professional submits your case to a broad cross-section of potential institutional buyers for life settlements, requesting they submit initial bids on the policy.

  6. The life settlement professional then negotiates on behalf of the seller to achieve the highest final bid price from the top buyer.

  7. When the professional believes the best potential bid is in hand, the client is consulted for a decision to proceed. The life settlement professional signs a Letter of Intent (LOI) on behalf of the seller, indicating acceptance of the bid.

  8. The winning buyer creates purchase contracts for the seller to sign. The seller places the funds to purchase the policy into an escrow account pending the close of the transaction.

  9. After the Life Settlement documents are all signed and verified, the policy ownership is officially changed on the books of the insurance company, and the escrow releases the purchase proceeds to the seller.

  10. After life settlements have been completed the buyer assumes all responsibilities including premium payments. The buyer receives 100% of the death benefits when the insured dies.


About the author:

David Mickelson, ChFC, AEP is an expert in wealth strategies for seniors. He has helped hundreds of seniors with life insurance, life settlements, and all aspects of estate planning.





What to Expect

Life Settlements, like many large transactions involving personal finance, have many laws and regulations that must be adhered to. There are many steps from gaining an initial policy valuation to final closing of escrow. Your life settlement professional will orchestrate of the whole process and work on your behalf to negotiate the best sale price.



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Life settlements can be a great source of income.