It starts out like the below screen grabs, simply enough, but, it is invariably the beginning of a path to mislead and confuse. Ultimately ensuring that the individual who is considering the sale of an unwanted or surplus life insurance policy will receive less than fair market value for his or her asset...and that an unscrupulous intermediary (we think of most of them as parasites, but, we'll keep that to ourselves) extracts wildly irrational economics from the transaction .
below is not the beginning of a productive, honest relationship...
While it is possible to provide a directionally useful estimate of value of your policy very quickly, it is, literally, impossible to calculate an even remotely useful estimation of value without knowing at least the following:
- Face Value (death benefit) of policy
- Age, health, and gender of the insured(s)
- Projected premium stream into future years (in force illustration)
- Maturity age of the policy
- The product itself and the carrier
- Whether it is a single or joint policy and which insured(s) are alive
- The issue date of the policy
- State of policy domicile
As importantly, the valuation factor that no "instant estimate" can provide - including any estimate that 1908advisors might generate for a prospective seller - is what individual market participants might value at this moment, which is manifested in the discount rate that they apply to the projected cash flows of a given policy. But, that is perhaps fodder for another blog post. So, back to the topic at hand.
Most "life settlement" brokers (and now, "marketing referral" companies) rely on one simple fact, that few people understand - or want to understand - the process of how to sell an unwanted life insurance policy. While the level of understanding among life insurance owners and fiduciaries as to how to sell an unwanted life insurance policy remains relatively low, the evoliuton of search engine optimization has intensified the competition among intermediaries to secure the active interest of the prospective policy sellers before they learn too much and before they understand with whom they should and should not be placing their trust. Why? For a broker, to limit your options, thus ensuring that they can charge you an otherwise indefensible transaction fee. Or, for a marketing referral company, typically, to buy the policy from you at a far below market price, and then turn around and sell it for a massive profit...dollars that should be going into your pocket.
So...do not bother with the "instant, free estimate", as it is of, literally, no value, and never, ever, EVER, accept an offer from a marketing referral company without exploring your options. And never, ever, EVER sign a non-circumvent agreement with a broker. Ever.
If you've done either or are contemplating either, please...think again. And give us a call. We'd love to help.
Myth - Brokers have, manage, or control the capital to buy your policy.
Truth - There is not a single life settlement broker in the market that has its own capital or that has any control or influence over what policies principal investors will purchase or how much those investors (institutional buyers such as Apollo, Blackstone, TPG, Redbird Capital Partners, Berkshire Hathaway, Vida Capital, etc.) will pay. Not a single one. Brokers, by definition, broker your policy to actual buyers, through their statutory buyer agents, "Providers" (some of which are directly connected to capital, inasmuch as they are captive to a single buyer) and collect a fee for having introduced your policies to those buyers. Now, while there is nothing wrong with providing such a service, the implication that they have capital is not an accident. They imply that they have the capital to purchase your policy or that they are "asset managers" - using the word "capital" or "capital management" in their name, suggesting with loose or explicitly misleading wording of what service they provide - to exaggerate their significance in the transaction and in order to create the perception that they have control when, in fact, they do not...and to justify their fees.
As you'll see in subsequent posts, though, this isn't the only misleading tactic employed by life settlement brokers and the life insurance agents - who sold the policy in the first place - with whom they work (and pay to bring them policies)...all enabling them to extract egregious, unconscionable fees from policy sellers, taking 15% - 40% of the proceeds from the sale of YOUR client's asset, resulting in a significantly smaller windfall to your client than they should receive.
Brief, simple posts to provide wealth advisors and HNW policy owners additional insight as to how to most efficiently and cost effectively - and how to avoid common pitfalls and less-than-professional intermediaries - undertake the sale of an unwanted or surplus life insurance policy.