Selling a Life Insurance Policy: Brokers, Providers and Fees

If you decide a life settlement is worth exploring, how you sell matters almost as much as whether you sell. Different kinds of companies are paid in different ways, and the fees can change how much money ends up in your hands. This guide covers the main players, how fees work, what to ask and the warning signs to watch for.

The short answer

Get more than one offer if you can. Ask for every fee in dollars. Compare offers by what you’d receive after fees and taxes. Confirm that each company is licensed in your state. And don’t sign until you’ve talked with your family and a financial or tax professional.

Who you might deal with

Some companies act in more than one role. Ask each one who it represents and how it’s paid.

How fees can work

Fee structures vary. Brokers are commonly paid a commission, which might be a percentage of the offer, of the policy’s face value, or of the amount above the cash surrender value. Other transaction costs can apply. Whatever the structure, ask for the amount in dollars for the offer you’re considering, and ask whether it comes out of the offer or is on top of it.

A worked example: the bigger offer isn’t always the bigger payout

This is an illustration with made-up numbers.

• Offer 1, through a broker: $80,000, with a commission of $12,000. You’d receive $68,000.
• Offer 2, directly from a provider: $72,000, with no separate commission. You’d receive $72,000.

The headline number was higher for Offer 1, but Offer 2 would put more money in your hands. And tax, which depends on your basis, comes after this. See taxes on life settlements. Always compare what you’d actually receive.

Steps to take

1. Confirm you want to sell. Review your other options first. See what to do with a policy you can’t afford.
2. Gather your documents. This usually includes the policy, recent statements showing cash value and premiums, and permission for the buyer to review medical records.
3. Check licenses. Most states regulate life settlement providers and brokers, and the rules differ. Your state’s department of insurance can tell you what protections apply and whether a company is licensed.
4. Get offers in writing. Ask for the offer amount, all fees, and what you’d receive.
5. Ask how payment works. In many transactions, an independent escrow agent holds the funds until the insurer confirms the change of ownership. Ask how it works in yours.
6. Review the contract with someone you trust. An attorney, tax professional or financial advisor can help. Ask about any cancellation period.
7. Talk to your beneficiaries. They would no longer receive the death benefit.

Red flags

• Pressure to sign quickly, or a deadline that doesn’t seem real.
• A company that won’t show its license or won’t put fees in writing.
• A guaranteed price before it has reviewed your policy and health information.
• Fees you can’t get a clear answer about.
• Encouragement to keep the sale secret from your family, your beneficiaries or your advisors.
• Requests for payment from you before any offer is made.

What happens to your information

A sale means sharing medical and financial information. Ask each company how it stores and shares it, who sees it, and whether it will be shared with other buyers.

This article is for general information and isn’t financial, tax or legal advice. Rules vary by state, and examples use made-up numbers. Check with licensed professionals about your situation.