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Senior Settlement

11/28/2017
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Senior Settlement Information

The seller of a senior settlement

receives immediate cash for the policy from the purchaser. The entity purchasing their policy becomes the new beneficiary of the policy at maturation and is responsible for all premium payments from the time of the purchase until the seller passes away.

Generally speaking, many policy owners who are the sellers in life settlement transactions are unfamiliar with this option until a financial professional mentions the option to them.

This particular type of transaction has not yet become a mainstream financial product like stock and bond transactions, though in the past few years the positive industry growth and attention from high-profile proponents.

How a Senior Settlement (Life Settlement) Works

In a life settlement transaction, there is a chain leading from the seller of the policy to the end buyer of the policy (known as a life settlement provider.) Each link in the chain has a different responsibility in facilitating the transaction and ensuring that it runs smoothly, while outside vendors typically assist the provider with specialized functions.

Policy Sellers

Senior citizens who have the greatest chance of selling their policies generally are over 65 years of age, have a calculated life expectancy of more than two years, but less than ten years, and may have experienced a health change that has led to their insurance premiums increasing. This undesirable scenario, often coupled with increasing health care and/or nursing home care costs, makes a senior settlement an attractive option to many seniors. There are certain restrictions for their policies as well - policies must be valued at $100,000 or more, and depending on the life expectancy determination of the seller, any and all types of policies can be sold, ie; universal life, whole life, or convertible term contracts.


Financial Advisors

Senior clients often discuss life settlement transactions with their financial advisors instead of conducting the transaction on their own, since their advisors are usually much more familiar with this non-mainstream financial product. Some examples of advisors that are becoming increasingly involved in the life settlement arena are:

Accountants/CPAs
Attorneys (especially Elder Law Attorneys)
Financial Planners/CFPs/ChFCs/CFCs
Estate Planners/CEPs
Certified Senior Advisors/CSAs
Charitable Trust Officers

Senior Settlement Brokers

The decision to work with a broker is up to the client, since financial advisors can submit the client's case to the life settlement provider directly. However, in an industry where market value for life insurance policies is not common knowledge, Senior Settlement Brokers typically do the best job of obtaining fair market value for a senior citizens policy. By submitting life settlement cases to multiple providers, they are able to obtain a greater number of bids overall, and help facilitate negotiations between high bidders. For a list of qualified, licensed brokers, please visit the LISA website.

Senior Settlement Providers

Life settlement providers are responsible for paying the client a cash sum greater than the policy's cash surrender value. The top providers in the industry fund many transactions each year and hold the seller's policy as a confidential portfolio asset, and do not make it available to outside investors. They also have in-house compliance departments to carefully review transactions, give seminars to both financial professionals and senior citizens about life settlements, and most importantly, they are backed by institutional funds from a major bank.

Other Involved Parties in Senior Settlement Cases

Underwriters - Provide life expectancy estimates on the insured for pricing purposes.
Funding Sources - Banks that provide institutionally funded firms with cash for payments.


Steps in a Senior Settlement Transaction

Senior citizen with financial needs consults with an advisor, decides to sell his or her policy.
Client & advisor select a broker who works with institutional providers.

Broker submits case (and client releases medical information) to various providers.
If policy meets criteria for a life settlement, providers send offers to the broker.

Client accepts their preferred offer.

Client and advisor complete the provider's closing package, and return essential documents.
Provider places cash payment in escrow and submits change of ownership forms to the insurance carrier.
Paperwork is verified and funds are transferred to the policy seller.

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