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Life Settlements - Frequently Asked Questions...

Q: What is a Life Settlement?

A: A Life Settlement is the sale of an existing life insurance policy to a third party in exchange for a cash payment that exceeds the cash-surrender value. The purchaser becomes the new policy owner and beneficiary and continues to pay all of the future premiums that are due until the policy matures. If a policy-owner is looking to surrender their policy to the carrier for a cash-surrender value, they should consult Milestone as a life settlement will typically pay 2 to 5 times more than the cash-surrender value.

Example: A senior owns a $500,000 life insurance policy with a cash-surrender value (CSV) of $15,000. Milestone evaluates the policy and offers the client $48,000 in exchange for transfer of beneficial interest in the policy.

Q: What is the difference between a life settlement and a viatical settlement?

A: A viatical settlement is similar to a life settlement, however the client has a terminal illness or a life expectancy of less than 36 months. The term is defined by state law. If state regulations apply, entities involved in the transaction must be licensed as either a viatical settlement broker or a viatical settlement provider in order to process the settlement.

Q: What are reasons for choosing a Life Settlement?

A:  Clients offer the following reasons for choosing a Life Settlement:

  • The sale of the policy would allow the policyholder to achieve an improved standard of living
  • The policy premiums are too costly to continue paying
  • The policyholder requires funds to pay for medical expenses
  • The original need for the life insurance policy no longer exists
  • The beneficiary of the policy is deceased
  • The policyholder wishes to purchase a new life insurance policy better suited to current financial needs
  • The policyholder wishes to make a cash donation to a charity
  • A "key man" policy held is no longer necessary as the employee has left the company

Q: What types of policies are considered for a Life Settlement? 

A:  Almost every type of life insurance policy is considered for a Life Settlement. Among them are Term, Universal Life, Whole Life, Survivorship, and Key-man. The life insurance policies can be owned by individuals or entities, such as trusts, corporations and charitable organizations. Milestone currently does not purchase variable type life insurance policies.

Q: How can the money from a Life Settlement be spent?

A: There are no restrictions on how the proceeds from a Life Settlement are spent. You may use the settlement money to take a vacation, pay off debt, or fund a new life insurance policy.

Q: Who will pay the premium on my Life Insurance policy?

A: Once the life settlement transaction is complete, all future premiums will continue to be paid by the institutional investor that purchased your policy.

Q: Are the proceeds from a Life Settlement taxable?

Milestone highly recommends the seller to seek assistance from his or her professional tax advisor, as each individual or entity will have a unique taxable event. The IRS Guidelines for the taxation of a life settlement were released in April 2009 and can be found below.

SELLERS: Click Here

BUYERS: Click Here

Generally, the adjusted tax basis for a seller is equal to the total premiums paid under the contract, less charges for the provision of insurance before the sale. The taxation on the gain is considered capital gains after the available cash surrender value is factored in.

Q: Are my records kept confidential?

A: Yes, all records are securely stored in accordance with HIPAA and state laws. The information and documentation provided will only be reviewed by Milestone and our institutional investors that we represent.

Q: How am I protected ?

A: Life settlements are regulated on a state by state basis. Certain states require both the client's repesentative (Life Settlement Broker) and the buyer(Life Settlement Provider) to be registered with the state as a licensed entity. Please see the Life Settlement Regulation Map for additional information. Milestone is a strong advocate of transparent transactions and requires full-disclosure in all transactions, so the consumer is aware of all commissions being paid to each entity. After the settlement proceeds have been disbursed to the seller, there is a 15 day rescission period in which the seller can request to have the changes reversed.

Q: How much will I receive for my policy?

A: There are a number of factors that determine the amount of money that can be paid for a life insurance policy. The two major variables in the pricing are the cost of insurance required to keep the policy in-force and how the health of each insured has changed since the policy was issued. Policy information such as the death benefit, type of policy, and the insurance carrier rating may be deterministic in Milestone's valuation of the policy. Further information such as life expectancy reports may be required in order to properly evaluate a submission, which may increase the offer that Milestone is willing to present, if the insured is in sub-standard health. The average settlement amount is 2 to 5 times the cash surrender value of the policy.

Q:Who are candidates for a Life Settlement?

A:Below are general guidelines that indicate if an individual could be a potential candidate for a Life Settlement: 

  • Clients age 65 years and older
  • Individuals whose health has declined or suffers from a terminal illness after policy issuance
  • Insurance coverage with a face amount of at least $50,000
  • Policy has little to no cash surrender value available

Q: Why should I work with Milestone Providers?

A: Milestone's mission is to offer superior settlement services to the industry while maintaining the highest degree of integrity, dignity, and fairness. Milestone represents a few of the world's leading institutional investors and provides the quickest turn-around time in the industry by utilitizing our state-of-the-art policy acquisition and management software. Milestone has built a sterling reputation in the industry and is committed to maintaining this reputation. Milestone has dedicated itself to giving ten percent of its pretax income to philanthropy and charitable causes.

Q:What are the steps in the application process?

A: In order to give an indication of value on an in-force life insurance policy, Milestone only requires a completed Life Settlement Application and an illustration showing account values greater than zero until age 100.

If a current illustration cannot be provided, we can request an illustration on behalf of the policy-owner once we recieve the executed Authorization to Release Policy Information form. Both documents can be downloaded under the "Forms" link on the right navigation menu. For further details you may also review our complete Life Settlement Process.

Q:Do I have to be licensed to work directly with Milestone Providers?

A: Milestone does not require any upfront paperwork or a signed exclusivity agreement in order to begin business with us. If a representative or firm is assisting the seller, then the representative or firm must be licensed as a life settlement broker in the policy owner's state of residence at the time the contracts are signed, if state regulations apply. State regulations do not require the seller to be licensed to sell his or her insurance policy. Likewise, an insitutional investor is not required to hold any licenses in order to purchase life insurance policies.

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Milestone recognizes the importance of maintaining the privacy of its clients? personal information. Milestone has electronic, physical and procedural safe guards in place and abides by all H.I.P.A.A. and state statute regulations to ensure that each clients? health information is properly protected.