Life Settlement Broker: Role, Fiduciary Duty, and Fees

A life settlement broker is a licensed intermediary who represents you, the policy owner, when you sell your life insurance policy for a cash payment larger than its surrender value. Unlike a life settlement provider, who buys policies on behalf of institutional investors, a broker has a legal fiduciary duty to act in your best interest and is required to shop your policy to multiple buyers through competitive bidding to maximize what you receive.¹² As of 2026, 43 states require these brokers to be licensed, and in 2025 the industry paid policyholders more than $626 million across nearly 3,000 transactions.³⁴

What a Broker Does That a Provider Does Not

A provider sits on the buy side. Providers purchase policies for pension funds, hedge funds, family offices, and endowments, and their economic interest is to acquire policies at the lowest price that still attracts a seller.⁵ Providers owe no duty to the seller. If you sell straight to a provider, you get one offer and no leverage.

A broker’s job is the opposite. The broker collects your policy information, obtains your authorization to release medical records, submits your case to multiple licensed providers, and runs a competitive bidding process so the buyers compete against each other. Under the laws of most regulated states, the broker is deemed to represent only the policy owner, regardless of how the commission is ultimately paid.¹

The money difference can be substantial. One industry case study described a $500,000 policy on a 77-year-old attracting an $80,000 offer from a direct buyer, where competitive bidding through a broker produced offers in the $130,000 to $160,000 range.⁶ Across LISA member firms in 2025, sellers received roughly nine times what their insurance carriers would have paid in cash surrender value.⁴

One boundary worth knowing: an attorney, CPA, or accredited financial planner you retain directly can sometimes assist with a life settlement without holding a broker license, provided they receive no compensation from the provider or purchaser.⁷ That exemption does not turn them into brokers; it only means they are not required to be licensed as one.

The Fiduciary Duty You Actually Get

The fiduciary obligation is the core legal protection in a life settlement. Both the NAIC Viatical Settlements Model Act and the NCOIL Life Settlements Model Act require a broker to act in the policy owner’s best interest and in accordance with the owner’s instructions.⁷⁸ Several states codify this directly. Florida’s statute says the broker “owes a fiduciary duty to the viator to act according to the viator’s instructions and in the best interest of the viator.”² California’s Insurance Code § 10113.2 uses parallel language and layers on specific disclosure requirements.⁹

No one else in the transaction owes you this duty. Providers represent their investors. A referring insurance agent represents the insurer. Under life settlement statutes specifically, the broker is the only party with a codified duty to maximize value for the seller.¹⁰

How a Broker Gets Paid

Life settlement brokers earn a commission tied to the gross settlement offer — the total amount the buyer agrees to pay before fees are deducted. Industry-standard commissions run 20% to 30% of that gross amount, with some cases as low as 15% for straightforward large policies and as high as 35% for smaller or complex ones.¹¹ Some states cap the commission at the lower of 8% of the policy’s face value or 30% of the settlement payment.⁶

A legitimate broker is paid only when the transaction closes. You should not be asked for upfront deposits, application fees, or retainers.¹¹ All fees must be disclosed in writing before you sign the broker agreement. Florida requires disclosure of both the compensation amount and the method used to calculate it.¹² California goes further, requiring disclosure of the gross purchase price, every commission and fee, and any affiliations between the broker, the provider, and the insurer.⁹

If a licensed insurance agent referred you to the broker, the agent may receive a referral fee. These typically run 0.10% to 0.25% of the policy’s face value, or 40% to 70% of the broker’s commission.¹³ Ask whether this is happening with your transaction.

What the Process Looks Like

Selling a policy through a broker typically runs several weeks to several months, depending on policy complexity and how quickly medical records come in. Getting quotes is free and non-binding; you can walk away at any point before signing a contract.⁵ The steps:

Engagement. You sign a broker agreement and authorize the release of medical records. The broker gathers policy details — type, face value, premium schedule, cash value.
Underwriting. The broker submits the case to multiple licensed providers. Each provider uses specialized underwriters to estimate the insured’s life expectancy, which is the primary driver of value.¹⁴
Competitive bidding. The broker solicits binding quotes. A binding quote commits the provider to pay the quoted price for a set period, giving you time to decide.¹⁴
Acceptance and closing. If you accept an offer, the funds go into escrow with an independent agent. The escrow agent releases payment to you only after the insurance carrier records the transfer of ownership and change of beneficiary.¹⁵
Post-closing. The buyer takes over all future premium payments. You have no further obligations. Most states give you an absolute right to rescind the contract within a set window — 30 days in California, 20 days in Idaho, 15 days in Florida.⁹¹

One thing to understand before signing: selling your policy means handing confidential medical information to third parties who may track the insured’s health status periodically after the sale. In California, these health-verification contacts are limited to no more than once every three months if the insured’s life expectancy exceeds one year.⁹

Whether Your Policy Qualifies

Not every policy is a candidate. Four factors drive eligibility:

Age. Most sellers are 65 or older. Someone as young as 60 may qualify with a significant change in health.¹⁶
Health. Some degree of health impairment usually matters. People under 75 in excellent health rarely qualify. For those under 65, a serious or terminal condition is generally required. After 80, qualification becomes more likely regardless of health, though future premium costs still factor in.¹⁷
Face value. The policy generally needs a face value of at least $100,000. Policies of $250,000 and above tend to attract more competitive offers.¹⁶
Policy type. Universal life, whole life, variable life, and convertible term policies all qualify. Non-convertible term can sometimes be sold, but only when the insured’s life expectancy fits inside the remaining premium schedule.¹⁷

Counterintuitively, worse health often means a higher price. A shorter life expectancy reduces the buyer’s expected premium outlay and shortens the time to payout.¹⁶

Licensing and How to Verify a Broker

Life settlements are regulated under state insurance law, not a single federal statute. Most states have adopted some version of either the NAIC Viatical Settlements Model Act or the NCOIL Life Settlements Model Act, the latter most recently readopted with amendments in November 2024.¹⁸¹⁹

Across regulated states, common broker requirements include a broker license (often conditioned on holding a life insurance producer license for at least one year), a $250,000 surety bond or equivalent financial responsibility, continuing education, mandatory written disclosures to the seller, and record retention for three to five years.⁷ Specific states add more. Wisconsin requires an initial eight-hour training course and at least $1 million in professional liability insurance for individual brokers.²⁰ California requires 15 hours of life-settlement-specific continuing education, charges $171 for broker license applications and renewals, and classifies violations as misdemeanors with civil penalties up to $10,000.⁹ Florida requires fingerprints, organizational documents, sworn biographical statements, and a background check from broker applicants.¹²

Before you sign anything, verify the broker’s license through your state insurance department’s website. The NAIC recommends this as a baseline step, and the Maine Bureau of Insurance repeats the advice: confirm the license, and if you choose to skip the broker, talk to at least three providers directly.⁵²¹

Red Flags When Choosing a Broker

A few patterns reliably separate legitimate brokers from problematic operators:

A broker who also purchases policies for its own account. That is a conflict of interest. A true fiduciary broker represents sellers only.⁶
Any request for upfront payment, deposits, or application fees.²¹
Guarantees of a specific payout before the policy has been underwritten and shopped.⁶
High-pressure sales tactics or deadlines designed to prevent you from comparing offers.⁶
No mention of competitive bidding, or a refusal to show you the offers received from each provider.
An escrow arrangement with the broker’s own account rather than an independent, FDIC-insured escrow agent.²¹

Ask the broker to show you, in writing, every offer each provider submitted. The fiduciary duty means you are entitled to see what the market offered, not just the number the broker chose to present.

Taxes on What You Receive

The federal tax treatment of life settlement proceeds was set by IRS Revenue Ruling 2009-13 and updated by Revenue Ruling 2020-05 to reflect the Tax Cuts and Jobs Act. How the gain is taxed depends on the policy type.

For a policy with cash surrender value, such as whole or universal life, the calculation runs in layers. Your adjusted basis equals the total premiums you paid. Any gain up to the policy’s cash surrender value is treated as ordinary income. Any gain above the cash surrender value is long-term capital gain. The IRS worked example: a seller who paid $64,000 in premiums and sold a policy with a $78,000 cash surrender value for $80,000 recognizes $14,000 as ordinary income and $2,000 as long-term capital gain.²²

Term life policies have no cash surrender value, so there is no inside build-up to tax as ordinary income. The entire gain above adjusted basis is long-term capital gain.²² Under the 2020 update, adjusted basis is no longer reduced by cost-of-insurance charges, which simplifies the math and can change the result for term policy sellers.²³

State tax treatment varies, and settlement proceeds can affect Medicaid eligibility and expose the money to creditors. Florida law requires brokers and providers to disclose these risks before closing.¹² If any of those apply to your situation, work the numbers through with a tax professional before you sign.

1
Idaho Department of Insurance. Life Settlement
2
Florida Senate. Section 626.9911, Florida Statutes
3
Life Insurance Settlement Association. FAQ
4
ThinkAdvisor. Life Settlement Market Grows
5
NAIC. A Consumer Guide to Life Settlements
6
Citizens Life Group. Best Life Settlement Companies
7
NAIC. Viatical Settlements Model Act
8
NCOIL. Life Settlements Model Act
9
FindLaw. California Insurance Code Section 10113.2
10
Southern Arizona Estate Planning Council. Life Insurance Market
11
Settle Wealth. Life Settlement Broker Fees and Commissions
12
The Florida Bar Journal. Policing Terminal Illness Investing: How Florida Regulates Viatical Settlement Contracts
13
ThinkAdvisor. Agents and Advisors: Life Settlements and Compensation
14
Kitces.com. Life Settlements: Selling a Life Insurance Policy for More Than Its Cash Value
15
Welcome Funds. Escrow
16
Life Force Financial. Who Qualifies
17
Welcome Funds. Eligibility Requirements for Life Settlements
18
NAIC. Chapter 30
19
NCOIL. Life Settlements Model Act
20
Wisconsin Office of the Commissioner of Insurance. Life Settlement
21
Maine Bureau of Insurance. Viatical and Life Settlement Shopping
22
IRS. Rev. Rul. 2009-13
23
KPMG. Rev. Rul. 2020-05