What to Look For and Look Out For in a Life Settlement Broker

Author: Frank N Darras

The life settlement industry has doubled over the past five years. Not surprisingly, this rapid growth has spawned a plethora of individuals and companies proposing to negotiate life settlements on a client’s behalf. Beware: This is not a business that anyone can just jump into. It is imperative that you seek out a reputable and experienced life settlement broker to work with.

Life settlements checklist
The following list of qualifications should be considered when choosing a life settlement broker.

• Is the company operating within the regulations of your state? The National Association of Insurance Commissioners (NAIC) developed the Viatical Settlements Model Act and accompanying Model Regulations to encourage states to adopt uniform standards for regulating the life settlement industry. Although life settlements are legal in all 50 states, regulations vary from state to state. Some have detailed, strict regulations, and others have none at all. The entire transaction is at risk if an agent works with an unlicensed company in a state that requires licensing. All reputable companies and providers should be well-versed in state regulations.

• How long has the company been in business? The rules and regulations pertaining to life settlements are complicated. The longer the company has been in business, the better prepared they are to deal with this tricky regulatory environment. Agents should steer clear of start-up companies.

• What is the company’s reputation? Be sure to ask for a list of referrals from the company. Are life settlements a core competency or merely a side business? Look at the company’s history: What were they doing prior to entering the life settlement market?

• Does the company have an anti-fraud policy? Several states have anti-fraud requirements, and mainstream settlement companies should have an anti-fraud policy. It is imperative that the insured’s privacy be maintained and their information kept confidential in order to prevent fraud and identity theft. This is a very serious issue. It is important that the company work only with institutional investors, as private investors are not subject to privacy rules.

• How many providers does the company work with? Agents who want the highest possible offer for their clients’ policies will want to work with an established broker who has direct contracts with many providers. A good broker will diligently seek out and negotiate the highest offer. Be sure and find out how many providers the broker has a direct contract with and how many of those will be used in the process of obtaining an offer.

• Does the company work with providers that are doing business with A.M. Best-rated issuers? Receiving an issuer credit rating from A.M. Best is a rigorous process and yields a reliable source for ascertaining which companies not only meet but exceed the state and industry requirements.

• Does the company have E&O (errors and omissions) coverage? Because life settlements are unique, agents should work only with companies that have E&O insurance that covers everyone involved, including the agent and their client. Agents who choose to work directly with a provider should make sure they will be covered under the provider’s E&O insurance.

• What is the commission schedule? Agents should work only with companies that have a fixed commission schedule. Be wary of companies that do not have a set commission schedule.

• Is the company a member of the Life Insurance Settlement Association (LISA)? Founded in 1995 as a nonprofit trade association for members of the viatical and life settlement industry, LISA is the industry’s governing body. LISA complies fully with all applicable laws, including antitrust laws, federal, state, and local laws, and all trade regulations and legal requirements. Another example of self-regulation is the Life Settlement Institute, a nonprofit trade group made up of six of the major institutionally funded life settlement providers. The Life Settlement Institute works with government regulatory agencies, legislators, and the life insurance industry to promote strict regulations and comprehensive standards and practices for life settlements. In 1992, the Life Settlement Institute started an anti-fraud database so companies could share information regarding suspicious or fraudulent activity.

Agents looking to expand their business with life settlements should take time up front to ensure they are working with a bona fide, reputable, and experienced life settlement company. It could mean the difference between success and failure.

Frank N. Darras is a partner with the law firm of DarrasLaw and heads the firm’s health, life, and disability department. He has been singled out as America’s leading plaintiff’s lawyer, representing disabled policyholders and long term care insureds. Mr. Darras has been recognized by CNBC, CBS, Wall Street Journal, Los Angeles Times, and other media outlets for his dedication to helping America’s blue-collar workers. Mr. Darras can be reached at 909-974-2121.

The life settlement industry has doubled over the past five years. Not surprisingly, this rapid growth has spawned a plethora of individuals and companies proposing to negotiate life settlements on a client’s behalf. Beware: This is not a business that anyone can just jump into. It is imperative that you seek out a reputable and experienced life settlement broker to work with.

Life settlements checklist
The following list of qualifications should be considered when choosing a life settlement broker.

• Is the company operating within the regulations of your state? The National Association of Insurance Commissioners (NAIC) developed the Viatical Settlements Model Act and accompanying Model Regulations to encourage states to adopt uniform standards for regulating the life settlement industry. Although life settlements are legal in all 50 states, regulations vary from state to state. Some have detailed, strict regulations, and others have none at all. The entire transaction is at risk if an agent works with an unlicensed company in a state that requires licensing. All reputable companies and providers should be well-versed in state regulations.

• How long has the company been in business? The rules and regulations pertaining to life settlements are complicated. The longer the company has been in business, the better prepared they are to deal with this tricky regulatory environment. Agents should steer clear of start-up companies.

• What is the company’s reputation? Be sure to ask for a list of referrals from the company. Are life settlements a core competency or merely a side business? Look at the company’s history: What were they doing prior to entering the life settlement market?

• Does the company have an anti-fraud policy? Several states have anti-fraud requirements, and mainstream settlement companies should have an anti-fraud policy. It is imperative that the insured’s privacy be maintained and their information kept confidential in order to prevent fraud and identity theft. This is a very serious issue. It is important that the company work only with institutional investors, as private investors are not subject to privacy rules.

• How many providers does the company work with? Agents who want the highest possible offer for their clients’ policies will want to work with an established broker who has direct contracts with many providers. A good broker will diligently seek out and negotiate the highest offer. Be sure and find out how many providers the broker has a direct contract with and how many of those will be used in the process of obtaining an offer.

• Does the company work with providers that are doing business with A.M. Best-rated issuers? Receiving an issuer credit rating from A.M. Best is a rigorous process and yields a reliable source for ascertaining which companies not only meet but exceed the state and industry requirements.

• Does the company have E&O (errors and omissions) coverage? Because life settlements are unique, agents should work only with companies that have E&O insurance that covers everyone involved, including the agent and their client. Agents who choose to work directly with a provider should make sure they will be covered under the provider’s E&O insurance.

• What is the commission schedule? Agents should work only with companies that have a fixed commission schedule. Be wary of companies that do not have a set commission schedule.

• Is the company a member of the Life Insurance Settlement Association (LISA)? Founded in 1995 as a nonprofit trade association for members of the viatical and life settlement industry, LISA is the industry’s governing body. LISA complies fully with all applicable laws, including antitrust laws, federal, state, and local laws, and all trade regulations and legal requirements. Another example of self-regulation is the Life Settlement Institute, a nonprofit trade group made up of six of the major institutionally funded life settlement providers. The Life Settlement Institute works with government regulatory agencies, legislators, and the life insurance industry to promote strict regulations and comprehensive standards and practices for life settlements. In 1992, the Life Settlement Institute started an anti-fraud database so companies could share information regarding suspicious or fraudulent activity.

Agents looking to expand their business with life settlements should take time up front to ensure they are working with a bona fide, reputable, and experienced life settlement company. It could mean the difference between success and failure.

Frank N. Darras is a partner with the law firm of DarrasLaw and heads the firm’s health, life, and disability department. He has been singled out as America’s leading plaintiff’s lawyer, representing disabled policyholders and long term care insureds. Mr. Darras has been recognized by CNBC, CBS, Wall Street Journal, Los Angeles Times, and other media outlets for his dedication to helping America’s blue-collar workers. Mr. Darras can be reached at 909-974-2121.