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Life Settlements-Follow New Life Settlement Regulations to Reach a Booming Market

California Broker

California represents one of the largest life insurance markets in the United States. Naturally, this makes the state a major market force for life insurance settlements. The state was one of the first to create regulations and licensing requirements for providers and brokers. However, the state recently changed the way insurance agents can participate in life settlement transactions, and quite frankly, among agents, confusion and a misunderstanding of the new rules are prevalent.

Enough has been written about the industry that most insurance agents know that a life settlement transaction cannot exist without the involvement of a provider company, managing the details between seller and purchaser. In addition, a robust broker community has existed since the industry’s inception. For many years, an insurance agent who wanted to do a settlement for a client simply had to call a provider or broker. Times have changed.

The days are over for life insurance agents calling brokers to shop policies on their behalf. Today, a life insurance agent in California who recommends a settlement must be working directly with a settlement provider; secure a broker license with the state; or become duly authorized with producer authority by the California Department of Insurance in order to earn any type of fee or consideration for the referral.

Regulation, accountability, and money all come into play now. The state wants any insurance professional who is involved in a life settlement transaction (for compensation of any kind) to be held accountable for the regulations regarding settlements. Licenses also generate revenue, which is something every state needs these days. Employees of life settlement provider companies fall under the regulations; brokers must get specific licenses; and now, so must agents. Here are the options:

Become a broker or at least get the same license. An insurance agent can file the paperwork with the state; pay a fee; and then become a licensed life settlement broker. With this license in hand, the agent can then shop policies on their own or simply refer a client to a broker and receive a commission. This license carries with it ongoing filing requirements, fees, and other paperwork required of being licensed with any state.

Cut the corner, sort of, and secure producer authority. Life insurance agents who are licensed in the state for more than a year have another option by securing so-called “producer authority.” This is somewhat less tedious than the brokerage license, but requires a fee and filing with the state. Agents with producer authority can forward policies directly to licensed brokers and providers.

Work directly with a provider company. Provider companies – the most heavily regulated entities in the life settlement industry – have other options, primarily because their employees are covered by the company’s license. In California, life insurance agents can work directly with providers as long as the relationship is structured in a manner that is consistent with controlling statutes and regulations. Some life settlement providers have created such arrangements, which make it easier for agents to offer life settlements with less unwanted paperwork.

In defense of the California Department of Insurance, attorneys who work with the state regularly say that California’s filing requirements are similar to those in other states and are not considered onerous by comparison. In addition, the cost of securing a life settlement broker license or producer authority is generally less than $300. The main point is that many agents aren’t complying with the regulations and they may find the ongoing filing requirements tedious.

Given these regulatory changes, it is important to offer a significant counterpoint: The market for life settlements in California is coming back strong after the down years following the recession. Research firm Conning recently reported that the gross market potential for life settlements for this year is $198 billion and the firm expects about $3.8 billion in total face value policies to be purchased as life settlements this year.

Further, today’s retirees need all the help they can get to help fund retirement. The Baby Boom generation (the 76 million Americans born between 1946 and 1964) has begun to reach retirement age, but many of them have no savings. A recent Harris Poll confirmed that 25% of Boomers have saved nothing. However, the dire retirement picture for Boomers is counter-balanced by this generation’s unprecedented investment in insurance. Life insurance, and specifically life insurance settlements, can come to the rescue.

International Communications Research recently conducted its own study of Baby Boomers, which found that an overwhelming number of Boomers and seniors (79%) feel that financial planners and life insurance professionals should inform policyholders about life settlements as a financial option rather than letting a policy lapse due to not paying premiums.

In California, the market for life settlements is growing and will continue to be bolstered by retiring Boomers. Life insurance agents are on the frontline and can make a major impact, as long as they learn and follow the newest regulations.


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