Why are we systematically underpaying for life insurance policies?
by Wm. Scott PageMr. Page is CEO of PolicyAppraisal.com and LifeGuide Partners, LLC, which provides education and perspective to seniors, their loved ones, and advisors as they consider retirement options and research untapped financial strategies. Visit www.policyappraisal.com
Part II in a two-part series
In recent weeks, I published two articles that talked about a troubling trend in the life insurance settlement industry, known as gray sheeting. Life insurance settlement brokers and providers are systematically underpaying for life insurance policies, and they continue to advocate for an inefficient and antiquated pricing scheme. The result costs seniors millions of dollars and destroys the credibility of agents and advisors. I have received many questions from agents, asking how to prevent gray sheeting because it seems to be both widespread and the norm in the life insurance settlement industry.
Here are a few tips on how to prevent clients from becoming victims s of gray sheeting.
Don’t take “I don’t know” For An Answer
While the final value of a life insurance settlement is not known until a bona fide offer is given by a provider company, brokers and providers should be able to provide a range of values before the application process is completed. The industry has been around a long time, and brokers and providers know what similar policies have been sold for in the recent past. The days of saying “I don’t know” and “we will see” are over. If a provider or broker can’t give you some sort of estimate, then you need to consider another source.
Get An Appraisal
The life insurance settlement market has been around now for more than 25 years, and companies have developed metrics and algorithms that analyze policies and create an appraised value. Having an accurate and meaningful appraisal in hand is the single best way to prevent gray sheeting. Agents and their clients immediately flip the script when they have an appraisal and know what the policy is worth. It enables the client to get the maximum offer and prevents the policy from being diminished through gray sheeting.
Demand To Know The Commission Structure
A life settlement transaction takes time, energy, and money to complete, and the industry has a well-established commission structure. Unfortunately, not every broker explains this structure in detail to agents and their clients. While you don’t want to begrudge anyone a profit, you also don’t want to get fleeced via gray sheeting. Ask brokers and providers to supply a breakdown of the commission structure, so you understand how brokers and providers are compensated. Transparency is critical to combatting gray sheeting, so the advisors and their clients understand how different players make from the transaction.
Review All Offers
Agents and advisors must make it clear that brokers disclose all the offers that are made on a policy. It’s critical that brokers do not steer a transaction to a provider company that may end up paying them a higher commission. Agents and their clients need to make sure they get the highest net offer, and the only way they can do that is if they see all the offers.
Know Your Rights
Advisors and agents need to know that they are driving the process. To avoid gray sheeting, clients need to understand the overall life settlement process, commission structure, timelines, and estimated value before starting the rigorous application phase. Don’t be rushed by providers and brokers because you have a competitive marketplace.
Gray sheeting will be eliminated when educated agents and their clients require appraisals and complete transparency when selling a life insurance policy as a life settlement.