Many older Americans need extra cash and selling a life insurance policy through a life settlement is an excellent way to gain more money. However, some potential clients may have a few questions about life settlement risks. Understanding how to secure life settlements is essential before selling your life insurance policy. Fortunately, a life insurance settlement is one of the safest financial transactions available due to regulation.
Approximately 90% of the citizens in the United States live in areas with various laws protecting seniors during the life insurance settlement process. For example, consumer protection laws include the requirement for life settlement companies to be licensed with the state’s insurance department for which the policy owner currently lives. Life settlement companies are also required to use approved forms, and they also have to give the policy owner extensive disclosures related to policies and any transactions. Regulations also include a discussion of alternatives to life settlements, and these life settlement firms must review the risks involved with selling a policy.
Financial Privacy Laws
Additionally, life settlement companies must protect the privacy of each policy owner and seller. Following these financial privacy laws is a top priority for life settlement firms to ensure they comply with these rules at all times. These regulatory protections related to life settlement firms have resulted in only two consumer complaints involving life settlements being reported to insurance regulators in the United States since 2015.
Life Settlement Risks
Understanding life settlement risks are important before you decide to sell your existing life insurance policy to a third party. Doing your research in advance before working with a life insurance settlement company is always a good idea. Keeping a few different things in mind throughout this process is critical in keeping risks to a minimum while ensuring you are more than well-satisfied with the final results.
Here are a few simple steps to take to further secure life settlements:
1) Only Work with Reputable Individuals or Companies
The first step in reaching a safe and secure life settlement is only working with individuals or companies with an excellent reputation in the industry. Asking for different references and looking at online reviews is especially important before you decide to partner with a life insurance settlement company. A life insurance policy is often one of the most valuable assets for seniors, as it’s always well worth your time to do your research in advance before using a licensed life settlement company.
2) Verify State License
Another critical tip in reducing life settlement risks is to only work with individuals or companies that are licensed in your state. While many companies advertising life settlements aren’t required to be licensed, it is required for a life settlement company that processes the policy owner information to be licensed in your state. Often, the company handling the advertising is required to mention the different names of the licensees that may handle the information of the policy owner.
3) Obtain Multiple Appraisals
Clients should always take the extra time to offer policies to multiple life settlement firms before agreeing to a sell. Always getting multiple appraisals can often result in a bigger payout for the life settlement policy. The value of the accepted life settlement must also be larger than either the policy’s cash surrender value or any accelerated death benefit that might be available.
4) Understand Transaction Costs
Most state laws require disclosure for fees and commissions. However, the requirements for compensation transparency aren’t identical across each state. For example, some brokers may take significant commissions that significantly reduce the life settlement for a policy owner. The safest option is to only work with life settlement companies that disclose their commissions, fees, and any other expenses that could impact the payout for the policy owner.
5) Know How Life Settlement Companies Will Handle Your Personal Data
Life settlement firms may handle your personal information in different ways. For example, does a form detail how they will use your health information and how long will they keep this data on file? Understanding financial privacy laws is always well worth the effort before working with any life settlement firm.
Closing Thoughts
A life insurance policy is often one of the most valuable assets for seniors. Selling a life insurance policy can often provide additional cash to boost retirement savings, pay unexpected bills, help-out family members, or spend this money in many other ways. Verifying a life settlement provider license, checking financial privacy laws, and understanding the transaction costs are only a few examples to help you secure your life settlement. Following these simple tips is always well worth the additional work to help minimize life settlement risks.
