For those of us who maintain that there is some value in keeping our life insurance licenses unscathed and not getting our pants sued off, the life settlement business has just been one of those things that just hangs out there.
The life settlement business has created a whole new breed of insurance agent. For those that aren’t familiar, a life settlement happens when a person sells their term life insurance policy to a third party. When this happens, the term life policy is converted to a universal life policy. The insured receives compensation from the life settlement company for a policy that would have likely lapsed with no value anyway. That seems like a pretty OK thing to do.
So, the agent gets a commission from the conversion of the term policy. Just to put that into context, a conversion is generally a very nice payday for almost no work. But, if an agent chooses, they can place your business with a life settlement company that will give them a portion of the settlement, so in essence they get a commission on the settlement money. And the agents that are really in the life settlement groove, will talk the insured into dumping their settlement money into another life insurance policy, so they get paid a third time.
Unscrupulous life settlement practices don’t often make the headlines unless the insured happens to be someone famous. Someone tried showing Larry King how to make money by buying and selling life insurance policies on himself, and now he gets to show the whole scenario to a judge.
It seems to me that if an agent would just skip the greedy part, and if a client has a policy that is going to lapse, suggest that selling it might be worth considering, things might be ok. As long as the temptation is in place to have one client that you can make multiple large commissions from, there are going to be slime ball agents that will take advantage.
Bottom line. If a life insurance agent suggests a life settlement to you, make them disclose how much money they are going to make and how many sources they will be getting money from. If they are getting paid multiple times, they are taking money out of your pocket. If a life insurance agent suggests you buy a policy simply with the idea of turning around in a few years and selling, run. It may sounding tempting, but run. This is not what life insurance is about and an agent that suggests it, is not worthy of your business, and I contend, not worthy of the license that they will likely lose before too long anyway.