Why Agents Should Pre-Qualify Life Settlement Clients with Policy Appraisals

Becoming pre-qualified is all the rage. When we go to buy a car, we usually know whether or not we qualify to afford the payments. In the competitive world of residential real estate, if you’re not pre-qualified for a mortgage, you’re very likely to get shut out of bidding – particularly when the market starts to heat up like it is right now.

Why wouldn’t you also want to pre-qualify your client’s insurance policy for a life insurance settlement? Agents and advisors are entering into negotiations, often involving hundreds of thousands or even millions of dollars, and they have no idea what the asset they are selling is worth. Advisors are negotiating “blind” on behalf of their clients. Makes no sense, right?

In the world of life insurance settlements, most agents walk into the negotiation with a life settlement provider or broker and are completely unprepared. The brokers are prepped for battle while the advisor, who’s bearing the bulk of the fiduciary responsibility, is largely unarmed. Having done little to no research into the value of the insurance policy, an agent or advisor has no idea what the market value of the policy is.

Imagine putting your house up for sale without first looking at realtor.com, Zillow, or the multiple listing service. Or trading in your car without checking the blue book value. It would amount to financial negligence.

We watch a similar thing happen every day in the life settlement market. Agents unwittingly become the dream agent/sucker for brokers and providers that do not have your client’s best interest in mind. It doesn’t help that the life settlement market still resembles the “Wild West.” Yes, it’s regulated, but it continues to be policed by a patchwork of rules that differ from state to state. Some federal rules have an impact, but the industry has changed little in the past 30 years – and providers know how to work the margins.

This hodgepodge of regulations also often leads to sloppy business practices by brokers and providers. An advisor may submit a client’s info into the marketplace and the brokers and providers end up doing a lousy job of disclosing their background and the ultimate source of funding. While the agent may think they know who is funding an offer, the broker may be shopping it around to a variety of sources. This means the client’s private, financial and medical information, including social security numbers and policy amount, are getting passed around to different companies – unbeknownst to the agent or the client.

Add the lack of understanding of the policy’s value with the privacy nightmare, and you get a very unsavory situation for a client. Agents are waiting for offers without a baseline or benchmark to compare against, and this makes them susceptible to a lowball offer. Meanwhile, the client’s data is zooming across the internet.

I would argue that agents who don’t get a life insurance policy appraisal before entering negotiations with brokers or settlement companies are not only doing a disservice to their client, but they could even be close to breaching their fiduciary responsibility. Again, imagine if your realtor slapped a price on your house but never looked at a comparable listing. Think about what would happen if you hired someone to sell your car and they never checked the market value. Agents who don’t have an understanding of a policy’s worth are truly not acting in the best interest of their clients.

Our solution is simple. We secure the basic information about the policy and the client. We ask a few specific questions and then create a quick “thumbnail picture” of how much a policy ought to be worth on the secondary market. Armed with a policy appraisal, agents and advisors are ready to go to battle for their clients.

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