Do producers need a life settlement broker?

By Adam Meltzer

Magna Life Settlements


There are three ways a producer can participate in the life settlement industry: utilizing the services of a life settlement broker, working directly with a life settlement provider, or simply brokering the case internally. Each way yields similar results with different benefits, allowing producers to find the best fit for their business model.

​The role of the life settlement broker has morphed, along with the life settlement industry as a whole. In the early days of life settlements, when regulations were lax, life settlement brokers boasted about their relationships with funders and their ability to achieve the highest price for a life insurance policy. As regulations increased, licensed life settlement providers have become extremely visible in the marketplace, raising the question: “Do I need to use a life settlement broker?”

There are three ways a producer can participate in the life settlement industry: utilizing the services of a life settlement broker, working directly with a life settlement provider, or simply brokering the case internally. Each way yields similar results with different benefits, allowing producers to find the best fit for their business model.

The most traditional way of participating in the life settlement market is to utilize a life settlement broker. Life settlement brokers serve many roles throughout the process and it is suggested that a producer use a life settlement broker for at least their first transaction.

A major benefit to a life settlement broker is their willingness to cover the underwriting costs of the policy: ordering medical records and multiple life expectancy reports. Also, the life settlement brokers are well versed in life settlement regulations and can advise what, if any, license is required.

If this is the preferred method of participating in the space, pick one broker and one only! There are only so many life settlement providers and all are well known. If a producer sends the same file to multiple brokers, then the same life settlement providers will receive the file multiple times, causing a qualitative devaluation of the file.

Producers can also work directly with life settlement providers. The majority of life settlement providers have departments that handle these direct relationships. The process mirrors that of working with a life settlement broker except that the file is only seen by one possible purchaser. The life settlement provider will pay for and do the underwriting of the file.

What some see as a disadvantage of this choice is that only one life settlement provider is bidding on the file, possibly yielding a lower bid compared to files that go to open market. Producers that utilize this method will disagree with this assumption. While the gross bid may be lower, by cutting out a layer of commission, all three parties are much happier. The life settlement provider is able to pay less and get a higher internal rate of return and the producer is able to take a higher commission while still passing on a higher purchase price to the policy owner.

The final way a producer can participate in the space is to handle the entire process internally, especially after using a life settlement broker for the first transaction. There is no great mystery to finding life settlement providers. Like other insurance products, most states regulate life settlements through their department of insurance. Once a producer identifies which state the file belongs to, a quick search can show a list of licensed providers, as well as what licenses might be needed.

The biggest downside to this process is that the producer will have to incur all of the underwriting costs. The biggest benefits include a greater control of the transaction, as well as the ability to pass on a higher purchase price to the policy owner.

Whichever way you choose to use, the important thing is that producers are seeing and utilizing the value of the life settlement market.