July 2, 2026
9:54 pm

Life Settlement Due Diligence Checklist for Policyholders

Due diligence in a life settlement means verifying every party’s license, demanding every disclosure in writing, and comparing multiple offers before you sign — in that order. The transaction is legal and regulated in most states, but the protections only work if you actually use them. Sellers who skip verification steps are the ones who end up with hidden commissions, lowball offers, or worse.

This checklist organizes the entire process into seven stages, from pre-market preparation through post-closing follow-up, with specific items to check at each stage.

In This Article

Stage 1: Gather Your Policy Documents Before Anyone Calls You
Stage 2: Verify Every License With Your State Insurance Department
Stage 3: Understand Who Represents Whom — and What They Are Paid
Stage 4: Control Your Medical Information and the Underwriting Process
Stage 5: Compare Offers on Net Proceeds, Not Headline Numbers
Stage 6: Scrutinize the Contract Before You Sign
Stage 7: Close Carefully and Complete the Post-Sale Checklist
Frequently Asked Questions

Life Settlement Due Diligence Checklist for Policyholders

Stage 1: Gather Your Policy Documents Before Anyone Calls You

Due diligence starts with your own paperwork, because you cannot evaluate an offer on a policy you do not fully understand. Assemble these documents before contacting any broker or provider:

The policy contract, including all riders and amendments — note especially any accelerated death benefit or conversion riders
A current in-force illustration from your insurer, showing projected premiums needed to keep the policy alive to various ages
The most recent annual statement, showing cash surrender value, outstanding loans, and current death benefit
Premium payment history, which establishes your cost basis for taxes later
Beneficiary designations and confirmation of who owns the policy (an insured, a trust, or a business may be the owner)

Three numbers from this stack drive everything downstream: face value, cash surrender value, and annual premium burden. The surrender value is your floor — any settlement offer must beat it decisively to justify the effort, since settlements typically pay 4 to 8 times surrender value. The in-force illustration matters because buyers price your policy partly on how expensive it is to carry, a dynamic explained in how life settlement value is calculated.

If you have not yet decided whether selling makes sense at all, pause here and work through our self-assessment guide first. Due diligence protects a decision you have already reasoned through; it does not substitute for the reasoning.

Stage 2: Verify Every License With Your State Insurance Department

This is the single highest-value item on the entire checklist, and it takes about ten minutes. Most states regulate life settlements under statutes modeled on the NAIC Life Settlements Model Act, which requires both providers (the licensed buyers) and brokers (who represent sellers) to hold state licenses. Your state insurance department maintains searchable license records, and the NAIC website links to every state regulator.

Check specifically:

Provider license: is the entity that will actually purchase your policy licensed as a life settlement provider in your state (the state where you, the owner, reside)?
Broker license: if you use a broker, are they licensed as a life settlement broker — not merely as a life insurance agent — where your state requires it?
Disciplinary history: ask the department whether the licensee has consumer complaints, enforcement actions, or license suspensions on record
Escrow arrangements: confirm funds will flow through an independent escrow agent, not the provider’s operating account

An unlicensed party is not a negotiating point; it is a full stop. The U.S. Government Accountability Office’s 2010 report found that regulatory gaps and inconsistent oversight were the market’s main consumer risks — licensing verification is how you close that gap personally. Anyone who discourages you from checking belongs on your red flags list.

Stage 3: Understand Who Represents Whom — and What They Are Paid

The most common structural confusion in life settlements is mistaking the buyer’s agent for your agent. Get the roles straight before you share a single medical record.

A life settlement provider purchases policies for investors. When you deal with a provider directly, you are negotiating with the buyer. Direct deals can save broker commissions but sacrifice competition.
A life settlement broker owes you, the seller, a duty to shop your policy among multiple providers and negotiate the best offer. Their commission comes out of your proceeds.
A financial advisor or insurance agent who refers you may also receive compensation — ask.

Checklist items for this stage:

Get the representation relationship in writing: does this party owe duties to you or to the buyer?
Demand written disclosure of all compensation — broker commission, referral fees, and any spread — before you sign. Most state statutes require gross-offer disclosure, meaning you must be told what providers offered before commissions were subtracted.
Ask how many providers the broker will actually solicit, and request the full bid history at the end.

Neither route is automatically wrong. The trade-offs are covered in broker vs. provider, and an educational firm can help you understand both paths without buying your policy itself. What is non-negotiable is transparency: undisclosed compensation was the abuse regulators wrote the disclosure rules to stop.

Stage	Key Checklist Items	Dealbreaker If…
1. Documents	Policy, in-force illustration, annual statement, premium history	You cannot establish surrender value or premium burden
2. Licensing	Verify provider and broker licenses with state insurance department	Any party is unlicensed or discourages verification
3. Representation	Written role disclosure; all compensation disclosed in writing	Compensation is hidden or gross offers are withheld
4. Medical privacy	Limited HIPAA authorization; know who receives records	Open-ended authorization or data sold for marketing
5. Offers	3+ bids; compare net of commissions and estimated taxes	Single take-it-or-leave-it offer with deadline pressure
6. Contract	Rescission clause (15-30 days), escrow terms, death-during-rescission unwind	Upfront fees, missing rescission rights, vague escrow
7. Post-closing	Confirm transfer, calendar rescission date, notify tax preparer, update estate plan	Funds released before insurer records the transfer

Stage 3: Understand Who Represents Whom — and What They Are Paid

Stage 4: Control Your Medical Information and the Underwriting Process

To price your policy, buyers need your medical records and typically commission two independent life expectancy reports, which take 2 to 6 weeks to produce. This stage is where your privacy is most exposed, so put controls on it.

Read the HIPAA authorization before signing. It should name the specific parties authorized to receive records, state a purpose limited to the settlement transaction, and carry an expiration date. Refuse open-ended, unlimited authorizations.
Ask who receives your data. Under NAIC-model privacy provisions, your health information may be shared only with parties involved in the transaction — providers, life expectancy underwriters, financing entities — and not sold onward for marketing.
Request copies of the life expectancy reports or at least the estimates used. Some states and brokers will share them; the estimate is the single largest driver of your offer, and you are entitled to understand what the market believes about your policy.
Ensure your records are complete and current. Ironically, missing records usually hurt you: an underwriter who cannot verify a diagnosis may price you healthier — and your offer lower — than reality warrants.

Keep a log of every authorization you sign and every party that receives records. If you later withdraw from the process — which you may do at any time before closing — you can send written revocations. The privacy trade-off is inherent to the transaction, as we discuss in how life settlements work, but it should be a controlled trade, not an open door.

Stage 5: Compare Offers on Net Proceeds, Not Headline Numbers

Offers on the same policy routinely differ because providers use different life expectancy assumptions, discount rates, and portfolio targets. Competition is your leverage — but only if you compare offers correctly.

Collect multiple bids. Through a broker’s auction or by approaching several licensed providers directly, get at least three offers where the policy supports it.
Convert every offer to net-to-seller. Subtract broker commission and any fees. A $130,000 gross offer with a large commission can net less than a $118,000 direct offer.
Then subtract estimated taxes. Under IRS Revenue Ruling 2009-13, as modified by the TCJA in 2017, proceeds are tax-free up to your premium basis, ordinary income from basis to cash surrender value, and capital gain above that. Two offers with identical gross amounts can differ after tax if structured differently; the IRS rules are mechanical, so have a tax professional run your actual numbers.
Check offer conditions. Is the offer firm or subject to re-underwriting? How long is it valid? Does it require you to pay anything before closing? (You should never pay upfront fees.)
Benchmark against your floor: cash surrender value plus the value of any retained-coverage alternative.

Settlements typically land between 10% and 35% of face value; where your policy prices within that band is discoverable only through competition. The full methodology is in how to compare life settlement offers and evaluating a life settlement offer.

Stage 6: Scrutinize the Contract Before You Sign

The purchase agreement is where diligence becomes binding. Read it yourself, and strongly consider having an attorney review it — the cost is small against a five- or six-figure transaction. Verify each of the following on the face of the document:

The purchase price matches the accepted offer, with all compensation and deductions itemized
The rescission clause states your state’s window — generally 15 to 30 days — and explains how to exercise it, including the requirement to return proceeds
Death-during-rescission language: the contract should automatically unwind the sale if the insured dies during the rescission period, restoring the benefit to your original beneficiaries
Escrow terms: an independent escrow agent holds funds; money is released to you when the insurer records the ownership and beneficiary change, not at some vague later date
Post-closing obligations: exactly who may contact the insured to verify status, how often, and by what method — the NAIC model limits contact frequency
No lingering liabilities: you should have no obligation to pay future premiums after closing

The legal right to sell your policy has been settled since Grigsby v. Russell (1911), but the terms of this sale live entirely in this contract. Never sign under deadline pressure; a legitimate offer survives a week of review. If any provision contradicts what you were told verbally, stop and get the discrepancy resolved in writing — a lesson the myths article covers from the other direction.

Stage 7: Close Carefully and Complete the Post-Sale Checklist

Diligence does not end at signing. The closing sequence in a properly run settlement — which typically completes 60 to 120 days after your initial application — has its own checkpoints:

Track the change forms. The insurer must record the ownership and beneficiary transfer; ask for written confirmation and keep it.
Confirm funds cleared from escrow and match the contract amount to the penny.
Calendar your rescission deadline the day you receive proceeds, so the option does not silently expire while you deliberate.
Notify your tax preparer immediately. You will receive tax forms reporting the transaction; your premium-history records from Stage 1 establish basis for the three-tier calculation.
Revisit benefits eligibility. Settlement proceeds are countable assets for Medicaid and SSI; if this applies to you, the planning should already have happened, but confirm the execution.
Update your estate plan. Wills, trusts, or beneficiary-driven plans that assumed the death benefit exists need revision.
File everything — contract, disclosures, bid history, correspondence — in one place for at least the audit statute period.

Finally, brief your family on what to expect: the new owner will periodically verify the insured’s status for the rest of their life, which surprises relatives who were not told. If at any stage this checklist surfaced a dealbreaker instead, that is a success, not a failure — walking away is covered in when not to do a life settlement, and the broader landscape in the complete guide.

Frequently Asked Questions

How do I verify that a life settlement company is licensed in my state?

Contact your state insurance department or use its online license lookup — the NAIC website at content.naic.org links to every state regulator. Search for the exact legal entity name as a life settlement provider, and if you are using a broker, confirm they hold a life settlement broker license, not just a life insurance producer license. While you are there, ask about complaints and enforcement history. This takes about ten minutes and screens out the majority of problematic actors before they see your medical records.

What documents do I need before starting the life settlement process?

Five items: the full policy contract with riders, a current in-force illustration from your insurer, the latest annual statement showing cash surrender value and any loans, your premium payment history, and current ownership and beneficiary records. The illustration and statement let buyers price the policy; the premium history establishes your cost basis for the three-tier tax calculation later. Requesting the in-force illustration from your carrier can take a couple of weeks, so start there — the overall process runs 60 to 120 days.

Should I use a life settlement broker or go directly to a provider?

A broker owes you a duty to shop your policy across multiple providers and negotiate, which usually produces competitive tension and higher gross offers — at the cost of a commission deducted from your proceeds. Going direct to one or more providers avoids the commission but puts the burden of creating competition on you. Either route can work if you insist on written compensation disclosure and compare offers net of all fees. What fails is accepting a single offer, from anyone, without competition or disclosure.

What fees and commissions should be disclosed in a life settlement?

Everything. Under most state laws based on the NAIC Life Settlements Model Act, you are entitled to written disclosure of broker compensation before closing, and in many states the broker must reveal all gross offers received — so you can see what providers actually bid before commissions came out. Referral fees paid to an advisor who introduced you should also be disclosed on request. You should never pay upfront application, appraisal, or processing fees; legitimate parties are compensated from the transaction, not before it.

Who gets access to my medical records during a life settlement?

Parties directly involved in pricing and completing the transaction: the provider, the independent life expectancy underwriters (typically two firms produce reports, taking 2 to 6 weeks), and any financing entity behind the purchase. NAIC-model privacy provisions restrict use of your health information to the settlement transaction and prohibit selling it for unrelated marketing. Protect yourself by signing only HIPAA authorizations that name specific recipients and carry expiration dates, and keep a log so you can send revocations if you withdraw.

How many life settlement offers should I get before accepting one?

Aim for at least three where your policy attracts that much interest; strong policies through a broker auction may draw more. Offers vary because each provider uses its own life expectancy assumptions and return targets — spreads between the lowest and highest bid on the same policy can be substantial. Compare offers net of commissions and estimated taxes, not on headline numbers, and confirm each offer’s expiration date and whether it is firm or subject to re-underwriting. One unsolicited offer with a deadline is a red flag, not a market price.

What should I look for in the life settlement contract before signing?

Six things: the price matches the accepted offer with all deductions itemized; a rescission clause reflecting your state’s 15-to-30-day window with instructions for exercising it; automatic unwinding if the insured dies during rescission; independent escrow with funds released when the insurer records the transfer; clearly limited post-closing contact rules for status verification; and zero obligations on you for future premiums. Have an attorney review it — a small cost against a five- or six-figure transaction — and never sign under deadline pressure.

What happens after a life settlement closes?

The insurer records the new owner and beneficiary, escrow releases your funds, and your rescission clock — generally 15 to 30 days depending on state — starts running. After that, the new owner pays all premiums and will periodically contact the insured or a designated contact to verify status, within frequency limits set by state law. Your remaining tasks: report the sale to your tax preparer using your premium-basis records, update any estate plan that assumed the death benefit, and confirm no impact on means-tested benefits like Medicaid.

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.

Call (305) 209-7183 · Request a review online →

Table of Contents