Question: Are life settlements risky for consumers?

Brandon Selfors

Licensed Insurance Agent

Answer:

Life settlements are a federally regulated industry and are generally safe for the public but may pose some types of risks. Let’s look at a few important risk factors and how you can avoid these risks when considering the valid option of selling a life insurance policy.

1: Appraisal Risk

There’s minimal risk when getting an appraisal for the secondary market value of any life insurance policy.

NOTE: Your life insurance carrier, life agent, advisor or attorney generally do not provide secondary market valuations of life insurance policies unless they are licensed to do so.

Consumers should not base their policies value on general opinion or hunches rather consult a licensed life settlement company when obtaining an appraisal. Here what to do to avoid appraisal risk;

  1. Talk to a life settlement broker
  2. Talk to a direct life settlement buyer (also called provider)
  3. Avoid talking with a life settlement lead generation company

What’s the difference?

Providers typically give one perspective, valuation, or settlement offer for a policy. Providers do not represent the the seller in the transaction unlike a licensed life settlement broker. A life settlement broker is one who is legally bound to the clients best interest and whose job is to increase the offer amount by auctioning the policy to the highest bidder (a pool of regulated buyers) thus creating fair competition, maximizing value for the client and earning their commission in the process. So on one side of the coin a seller risks getting possible extra value out of the policy without risking time/energy and on the other side, risking being overly charged for a brokers service. More on this later. As for life settlement marketing companies, they can be a waste of time and people are often circumvented to a buyer a broker which causes confusion.

*See a list of all major life settlement companies so you know who you’re dealing with.

Let’s address other forms of possible risks.

2: Financial Risk

If one is considering a life settlement the policy itself may be the liability. Looking at every dollar paid into the policy + expected future premiums shocks most people. When a decision has to be made whether to keep it, stop paying, cash it in or sell it, consumers need to be afforded every option considering a life policy can be a seniors largest asset. One should consider tax risk, capital gains, medicare/medicaid, future life insurance eligibility and other important factors when considering a life settlement. What about the people around us? How could relationships be affected by life settlements?

3: Relational Risk

Couples: One often overlooked type of risk is relationship risk. Americans have been persuaded for 100’s of years to think of life insurance a particular way. Husbands may look a their policy as an obligation and feel satisfied when the premium is paid because he’s “taking care of his family”. For the wife, the policy may represent a symbol of her husband’s love and the idea of selling it (no matter how rational it may be) can challenge this belief system.

Beneficiaries: Family, children or friends who are beneficiaries may feel left out if a policy is sold and you consider the possible risks in one’s personal relationships.

How do I avoid these risks?

Overall, It’s important to remember that feelings are not facts. Getting all the information will help you avoid risks and aid in wise decision making.

  • Avoid appraisal risk by downloading ValuLife™ Life Insurance eValuation app on iOS/Android for a Free Cash Estimate in seconds!
  • Avoid financial risk by requesting a Free ValuLife™ Tracker Report. Illuminate your life insurance premium statement and compare it side-by-side with enriched data and track hidden value over time. Book a Meeting to learn how Bridge bases it’s commission on performance.
  • Talk to your loved ones about the option of selling your life insurance using our Free Conversational Guide.
  • Are you a licensed agent or advisor? Learn about Bridge Benefits
  • More questions? Read our FAQ Guide

*Not tax advice. This article is continually being refined. Check back soon for more updates.

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Our mission is simple: To increase wealth for American seniors.

Brandon Selfors / CEO

Certified Life Settlement Broker

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