Before you sign a brokerage agreement or accept an offer, get one sentence in writing: the gross amount the buyer is paying for the policy, every fee and commission coming out of it, and the net amount that will reach your account. Those three figures answer this entire question, and any party unwilling to state them in writing has told you something important about themselves.
The deadline is the signature. Compensation terms are negotiable before you sign a brokerage agreement and effectively fixed afterward. This is the one point in the process where asking a blunt question costs nothing and changes the number.
The structure itself is not complicated once the roles are separated. A provider is the licensed entity that buys your policy — the money originates there. A broker represents you, shops the policy to multiple providers, and in most states owes you a fiduciary duty. The broker is compensated out of the transaction, which means out of the gross offer, which means out of what would otherwise be your check. Below: exactly where the money moves, what the law requires each party to disclose, the two ways to take a policy to market, and the cases where none of this applies because you should not sell at all. Pine Lake Life Solutions provides education and a free policy review only.
In This Article
Who Each Party Is and Who They Work For
The provider. A licensed entity that purchases policies, typically deploying institutional capital from a fund, an insurer, or a pension investor. Providers are licensed by state insurance departments, generally in the state where the policy owner resides. The provider owes you contractual obligations under the purchase agreement and the disclosure duties the statute imposes — but it does not represent you. It is the buyer. Its job is to acquire the policy at a price that works for its investors. See what a provider actually is.
The broker. A licensed intermediary that represents the policy owner, gathers the underwriting file, solicits bids from multiple providers, and negotiates. Under the NAIC Viatical Settlements Model Act and the parallel NCOIL Life Settlements Model Act, a broker owes a fiduciary duty to the owner regardless of who ultimately pays the compensation. Read what a broker does.
The escrow agent. A neutral third party, typically a bank or trust company, that holds the purchase funds until the carrier confirms the ownership and beneficiary changes, then releases them to you. See how escrow works in a settlement.
The life expectancy underwriter. An independent firm that reviews medical records and produces a mortality estimate. Providers usually order two reports from different firms.
Four roles, four sets of incentives. The comparison at provider versus broker is worth reading before you engage either.
Where the Money Actually Moves
Follow one transaction from end to end.
The provider commits to a gross purchase price — say $190,000 for a $1,000,000 policy. That gross figure is what leaves the provider. It goes to escrow, not to you.
From escrow, the disbursement statement allocates the gross amount: broker compensation, any referring agent’s share, any outstanding policy loan payoff to the carrier, and finally the net to the seller. If the broker’s compensation is $38,000 and there is no loan, the net to you is $152,000 — 15.2% of face value, not the 19% the gross implied.
Two things follow from this. First, gross and net are different numbers and the difference belongs to intermediaries. Second, the person quoting you a number should always be asked which one they are quoting. In our experience the most common misunderstanding in this entire market is a seller who heard a gross figure and budgeted a net one.
Costs beyond compensation are usually small but real: escrow fees, medical record retrieval charges, and occasionally a carrier fee for processing the ownership change. Our page on what comes out at closing itemizes them.
One thing that should never appear: an upfront fee charged to you before an offer exists. Legitimate compensation is paid out of a completed transaction.
What the Law Requires Them to Disclose
Disclosure obligations are the consumer’s real leverage here, and they vary by state because each state adopts its own version of the model acts.
Under the NAIC Viatical Settlements Model Act, a broker must disclose to the owner the amount and method of calculating the broker’s compensation, with compensation defined broadly to include anything of value paid in connection with the settlement. The model also requires disclosure that the owner may rescind the contract within a stated period, that proceeds may be taxable and may be subject to creditor claims, that receipt may adversely affect eligibility for public assistance, and that the owner may be contacted periodically about health status after the sale.
The NCOIL Life Settlements Model Act, adopted in a number of states, imposes a comparable framework and expressly states that a broker representing the owner owes a fiduciary duty to the owner and must act according to the owner’s instructions.
The federal Government Accountability Office’s 2010 review of this market, GAO-10-775, specifically identified intermediary compensation as an area where policyholders frequently lacked clear information about what was being deducted from their proceeds. That finding is a large part of why the disclosure rules read as they do now.
Ask for the disclosure package in writing early, not at signing. See what commission disclosure covers.
| Party | Represents | Paid By | Licensed By | What to Verify |
|---|---|---|---|---|
| Provider | Its investors | Its own capital; it is the buyer | State insurance department | License number and state of licensure |
| Broker | You, the policy owner | Out of the transaction proceeds | State insurance department | Compensation in writing before signing |
| Referring agent or advisor | Varies | Often a share of broker compensation | Varies by state | Whether they are being paid at all |
| Escrow agent | Neither side | A fee from the transaction | Bank or trust regulator | Name of institution and release conditions |
| Life expectancy underwriter | The buyer | The provider | Not state-licensed as such | How many reports were ordered |
The Two Ways to Take a Policy to Market
Direct to a provider. You contact a licensed provider yourself. There is no broker compensation in the transaction, which sounds like it should leave more for you. Sometimes it does. The limitation is that you receive one buyer’s view of your policy, and offers on the same policy from different buyers genuinely differ — they use different life expectancy vendors, different discount rates, and different portfolio needs. A single offer gives you no way to know whether it is competitive.
Through a broker. The policy is shopped to multiple providers, and the resulting competition frequently raises the gross offer by more than the compensation costs. The broker owes you a fiduciary duty in most states and should show you every offer received, not just the one they prefer. The risk is compensation that is not disclosed clearly, or a broker who runs a thin auction.
There is no universally correct answer, and anyone who tells you there is has a financial interest in the answer. What is universally correct: know which role the person in front of you occupies, confirm their license with your state insurance department, and get compensation in writing before you sign. See whether you need a broker, how to identify a legitimate provider, and how to verify a license with your state.
Questions That Change the Number
Ask these before signing anything. Each one has produced a better outcome for someone.
- Are you a broker or a provider in this transaction? Which state license, and what is the license number?
- What is the gross offer, what is every deduction, and what is my net? Put all three in one document.
- How is your compensation calculated — a percentage of the gross offer, a percentage of face value, a flat fee, or a share of the amount above a threshold?
- How many providers were solicited, and may I see every offer received, including the declines?
- Is anyone else being paid out of this transaction, including my own insurance agent or advisor?
- Who is the escrow agent, and when are funds released?
- What is my rescission period, and how do I exercise it?
Question three matters more than it looks. Compensation calculated as a share of face value is not aligned with your outcome; compensation calculated as a share of the offer at least moves in the same direction you do. Question five catches the referral arrangements that people are most surprised by.
Get the answers in writing. A firm that will answer these on the phone but not on paper has given you an answer.
The Alternatives, and When Selling Is Wrong
None of this matters if a sale is not the right transaction. Rank the alternatives honestly first.
Keep the policy. No fees, no intermediaries, no disclosure questions. Correct whenever a beneficiary still depends on the death benefit and the premium is sustainable.
Reduce the face amount. Cuts the cost-of-insurance charge on a universal life contract and often makes an unaffordable policy affordable. Nobody is compensated for suggesting it, which is why it goes unmentioned.
Reduced paid-up. Ends premiums permanently on whole life in exchange for a smaller guaranteed benefit. Generally not a taxable event, no third parties.
Policy loan. Cash without ending coverage, generally not taxable while the policy is in force, but interest compounds and an unmanaged loan can collapse the contract.
1035 exchange. Moves cash value into a new life policy, annuity, or qualified long-term care contract without current recognition of gain under Internal Revenue Code section 1035.
Accelerated death benefit rider. Where a qualifying terminal or chronic illness exists, a payment under IRC section 101(g) may be excluded from income, with no broker and no fees at all. Check the rider schedule first, always.
Surrender. No intermediary compensation, no negotiation, and usually the smallest amount on the table.
A settlement is the wrong answer when someone still needs the coverage, when the face amount is under roughly $100,000 — Pine Lake works in the $100,000-and-up range — when the insured is in strong health for their age and offers would compress toward surrender value, or when proceeds would jeopardize needs-based benefits worth more than the money.
What a Straight Answer Looks Like
A transparent transaction produces a single page you can read in two minutes: gross purchase price, broker compensation stated as a dollar amount and a percentage, any referral compensation, loan payoff, escrow fee, and net to seller. It names the provider, the provider’s license and state, and the escrow agent. It states the rescission period in days and how to exercise it.
If instead you are handed a number with no breakdown, told that compensation is confidential, pressured to sign the same day, or asked for a fee before any offer exists, stop. Those are not negotiating positions; they are warning signs, and your state insurance department will take a complaint about any of them.
Keep the entire closing package. The purchase agreement, the carrier-acknowledged change of owner and change of beneficiary forms, the escrow disbursement statement, and the disclosure documents are what you will need if any figure is later questioned — including on the Form 1099-LS that arrives the following year.
If you want an honest read on whether a policy has market value at all before you engage anyone, a free review starts with the policy cover page: carrier, policy number, face amount, issue date. Send it in or call (305) 209-7183. If the answer is that the policy has no market value, you will be told that directly rather than sold a process. Pine Lake Life Solutions provides educational information only and does not provide legal, tax, or investment advice.
Frequently Asked Questions
Do I pay the broker out of my own pocket?
No. Broker compensation comes out of the transaction proceeds, which means it reduces the amount that reaches you rather than arriving as a separate bill. That is precisely why you should ask for the gross offer, every deduction, and the net figure in one written document before signing a brokerage agreement.
What is the difference between the gross offer and my net check?
The gross offer is what the buyer pays into escrow. The net is what remains after broker compensation, any referring agent’s share, payoff of any outstanding policy loan, and escrow and record-retrieval fees. The gap can be substantial, and confusing the two is the most common misunderstanding sellers have about this market.
Does the broker have to tell me how much they are making?
Under the NAIC Viatical Settlements Model Act and the NCOIL Life Settlements Model Act, a broker must disclose compensation, defined broadly to include anything of value received in connection with the settlement. States adopt their own versions, so confirm the requirement with your state insurance department and ask for the disclosure in writing regardless.
Is it cheaper to go straight to a provider?
There is no broker compensation in a direct transaction, but you also receive only one buyer’s view of your policy. Offers on the same policy differ meaningfully between providers because they use different life expectancy vendors and different return requirements. A competitive process often raises the gross by more than the compensation costs.
Should I ever pay an upfront fee?
No. Legitimate compensation in this market is paid out of a completed transaction, not in advance. A request for money before any offer exists is one of the clearest warning signs available, and it is worth reporting to your state insurance department even if you decline to pay it.
Who owes me a duty if something goes wrong?
In most states the broker owes the policy owner a fiduciary duty and must act on the owner’s instructions. The provider is the buyer and owes contractual and statutory disclosure obligations but does not represent you. Complaints against either can be filed with the insurance department of the state regulating the transaction.
Find out what your policy is worth — free, confidential, no obligation.
A 15-minute educational review covers your eligibility, every alternative, and a realistic view of what each path would net you.
Related Reading
- What Is A Life Settlement Broker
- What Is A Life Settlement Provider
- Life Settlement Provider Vs Broker
- Do I Need A Life Settlement Broker
- Life Settlement Commission Disclosure
- Closing Costs Life Settlement
- Life Settlement Escrow Explained
- How To Spot A Real Provider
- Verify Provider License State
Pine Lake Life Solutions does not purchase life insurance policies and does not provide legal, tax, or investment advice. Information provided is for educational purposes only. Eligibility for any option, including life settlements, is not guaranteed and depends on individual circumstances, policy terms, underwriting, and market conditions. Consult independent legal, tax, or financial professionals before making decisions regarding a life insurance policy.