Agents and advisors who are new to life settlements often ask about the difference between an application and a policy appraisal. Does one replace the other? Is an appraisal necessary? Which comes first? I would like to answer this by describing the three key differences between an application and an appraisal. And because everyone likes alliteration and cute wordplay, I have broken it down to three Ps: paperwork, process, and profits.
P is for Paperwork
Selling a life insurance policy traditionally includes a lot of paperwork, and this hasn’t changed regarding the actual act of transferring the ownership of a policy to an investor or another person. Once a deal is made, it remains an intensive process. However, the paperwork involved in an application and the paperwork involved in a policy appraisal could not be more different. Completing an application with a broker or provider is cumbersome. The policyholder must provide a ton of information, much of it is private and some that may be stuck in a safe deposit box somewhere. Once the process is started, it is enough of a slog that clients likely will not want to go through it twice. It takes time and it feels like entering into a contract – because it essentially is. Once a client fills out an application, they are practically “locked-in” with that broker or provider.
On the other hand, a policy appraisal requires very little paperwork. Typically, we only require the policy illustration and a brief medical history – and that’s it. We can determine the value of a policy on the life settlement market using our research and analytics – and far less of a client’s time and paperwork.
P is also for Process
As I mentioned, once you start an application with a broker or provider, you are locked into their process. The broker will shop the policy to several providers that will evaluate the policy with their investors. The advisor and the client are largely in the dark during this part of the engagement. At some point in the future (perhaps weeks), the client and agent may get offers on the policy, but it isn’t until this point in the application process that an advisor and their client hear some real numbers. Then, they have to comb through all of the aforementioned paperwork to try to understand the actual value of the policy and how much of it is going to end up in the pocket of the client.
With a policy appraisal, the process is much simpler. We get our basic information and then analyze it using our proprietary system. Typically, we can generate an appraisal within 24 hours and sometimes even faster. Very quickly, the agent and the client know the market value of the policy, so that they can decide whether or not it makes sense to sell the policy. Armed with a fast appraisal, advisors can make better recommendations to their clients.
P is certainly for Profits
Once the cumbersome application process is completed, clients will likely receive an offer, but it is unlikely they will ever know the true value of the policy. They also will not know how much was paid to the provider and the broker in commission fees. A life settlement can be one of the least transparent financial transactions around today as the client often doesn’t know who profits from it.
With a policy appraisal, the client and advisor are given the value of the policy first, so they know what the market will bear. They can then work with a broker or provider to sell the policy at the best price. With a policy appraisal, a client and the advisor have a much clearer picture of the profits and a much better understanding of where the money generated from the sale goes.
In the life settlement world, the life insurance policy appraisal comes first and serves as an important tool for agents and advisors. An appraisal helps clients make the best decision and ultimately receive a better life settlement. By following the three Ps, it becomes clear that the life settlement process is most effective when an application follows an appraisal.