Life Settlement Auctions Create Competition-Result in Higher Value.
Life Settlement Auctions Create Competition Among Potential Buyers Resulting in Increased Sales Prices.
In my last blog I explained the difference between a sale through a life settlement to a “direct” buyer as opposed to a broker submitting a policy to an auction process. Basically, a sale to a direct buyer is a transaction between the policyholder and one buyer, the company making the offer.
In contract, life settlement brokers generate multiple offers through an auction process where multiple buyers are invited to submit their bids to purchase a policy. Then, the highest final bid is the winner of the auction. The auction process without doubt a way for a policyholder to realize a higher payout in a life settlement.
Life settlement providers claim that the advantage of submitting a transaction through them is the elimination of intermediary fees such as the broker’s commission. However, more often than not, an experienced broker will create enough competition on the sale of a policy that the owner actually realizes more money at the end of the day, even when taking into account any fees and commissions.
And how is it even possible to know what the market value of a life insurance policy is worth unless you have multiple parties bidding on it?
It’s not.
As an example, recently we were presented with a case where the policy holder contacted us after being offered 35,000.00 for a policy with a death benefit of 500,000.00 by a nationally recognized life settlement provider (the guys on TV). We performed a preliminary analysis and estimated the policy was worth at least 100,000.00 on the open market. The policyholder engaged our firm to proceed with an auction of the policy and through the auction process, the policy ultimately sold for 185,000.00. which is 150,000.00 more than the fixed offer to purchase by the provider of 35,000.00.
While this example sounds extreme it’s not. It happens far too often where policy holders engage in life settlements with sole providers and sell for a fraction of the policy’s value.