Life Settlement Questions


What is a life settlement?
A life settlement is the sale of a life insurance policy where the insured is 65 years of age or older and does not have a terminal or chronic illness. In a life settlement transaction, the owner of the policy always receives more for the policy than the issuing insurance company will pay for the surrender of the policy. Top


Why would a policy owner want to sell their life insurance policy?
A life insurance policy is the property of the owner. A policy may be sold when the insured adult (age 65 or older) has determined that he or she no longer wants or needs the policy. This may arise in circumstances such as business owned policies where the insured is no longer connected to the business, or where the insurance proceeds are no longer needed to pay estate taxes or final expenses. The contract may be sold for any reason that the owner may desire. Top


What type of policy will Parcside Equity LLC purchase in a life settlement transaction?
Parcside Equity LLC will purchase whole life, universal life, variable universal life, second to die universal, second to die variable universal, and convertible term policies of qualified seniors.Top


Who will be responsible for premium payments after the sale of the policy?
Parcside Equity LLC will be responsible for all premium payments, after the sale is final. Top


Is the process confidential?
Yes. All Parcside Equity LLC personnel are guided by the highest standard of confidentiality. Therefore, no medical, financial, or other personal information about the seller and/or the insured (if not the same person, as when an insurance policy is owned by a trust or the insured children) which Parcside Equity LLC obtains as a result of the transaction, will be disclosed to any other person or entity not a part of the process with Parcside Equity LLC without the seller and insured specific written consent, unless required by law. Top


Are there any restrictions as to how the funds are to be used?
Parcside Equity LLC places no restrictions on how the funds are to be used by the seller after the insured's contract is purchased. Top


How does a life settlement work?
The insured or the contract owner if different than the insured submits an application through a partner, who provides the application to Parcside Equity LLC. We will obtain an in-force illustration of the policy from the issuing insurer showing the face amount and any outstanding loans and premiums due.

Parcside Equity LLC also obtains copies of the insured existing medical records from the insured physicians, or your agent will provide them to us. No medical exam is necessary for the insured. We review the records to determine if the insured meets our guidelines in order to make an offer on the policy.

Once an offer is made and accepted, the life settlement transaction is documented and it proceeds to closing. An escrow account ensures that the policy owner receives the purchase price offered. The policy seller has the right to rescind the transaction within 15 days of the receipt of funds so long as the purchase price and any premiums paid by Parcside Equity LLC are returned prior to the end of the recision period. Top


How long does it take to complete a life settlement transaction from start to finish?
Our goal is to complete most transactions within 30 days. The most significant factor of delay is that we need to carefully review and evaluate the insured medical records. Sometimes, obtaining these records may take some time to accomplish and can slow down the transaction process. Top


How much will the owner be paid for the policy?
The amount to be paid to the owner of a policy will depend upon a number of factors, including the medical condition of the insured, the amount of premium payments to keep the policy in force and the cash surrender value of the policy. Top


After a policy is sold, how will the buyer know that the insured has passed away?
Life settlement providers such as Parcside Equity LLC employ a number of techniques to determine the insured status. For example, we may use the Social Security Administration public database, which frees up a social security number when someone dies. We may periodically call a person designated by the insured to inquire as to the insured health status. We will never use any techniques that would bother or harass the insured. Top


Are the proceeds from a life settlement taxable?
The proceeds from a life settlement are generally tax free up to the amount of premiums paid for the policy. The difference between that amount and the cash surrender value is generally taxable as ordinary income. Amounts received in excess of cash surrender value are generally taxed as capital gain. We strongly encourage sellers to consult their own tax and financial advisors before completing a transaction so that they can determine the tax impact on them from the sale. Top


Is it OK to sell and buy life insurance policies?
Yes. Remember that once a life insurance policy is issued and put in force, it is the property of the contract owner. Much like any other asset, the policy owner has the right to dispose of the policy in any manner that he or she may choose after the contestability period has passed. Options may include holding the policy until maturity, surrender it for its cash value, lapsing the contract, or selling it for an amount higher than the cash value, but less than the policy face amount. Top


Does Parcside Equity LLC use institutional funding?
Yes. Parcside Equity LLC is proud to be among the few firms that use capital provided by large institutional firms. Top


How does Parcside Equity LLC and its institutional funder handle the financial risks with this type of business?
We use actuarial tables very similar to those used in the life insurance industry. These tables have been formulated in order to use the actuarial theory of the law of large numbers.This allows us to spread our risk over a very large group of policies. Top

212 755 6498-fax

230 Park Avenue, Suite 810
New York, New York 10169-0810

Parcside is a voting member of the Life Insurance Settlement Association (LISA).

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An article appearing in the July 2003 "Broker's World" magazine.