Retained Death Benefits: What Are They and Why Are They So Important?

Published July 18, 2022

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Life insurance can be a financial lifeline for your family should something happen to you, but it also comes with a financial responsibility that can be challenging to keep up with. There is a way to reduce the cost of paying for a life insurance policy while still ensuring security for your loved ones. Retained death benefits, a form of life settlement payout, gives the policy owner the option to retain a portion of the death benefit for their beneficiary while removing the burden of policy premiums. You can even elect to receive a combination of cash and coverage with no future premium obligations.

What is a retained death benefit?

There are a few primary options for cashing in a life insurance policy. The most common option is to sell an entire policy for cash, but what about those who need to maintain coverage?

A retained death benefit is one option wherein the policyholder keeps a portion of the current death benefit and no longer has to pay any premium obligations. There’s also a third related option: the policyowner gets a blend of cash and retained benefit. In this third option, the policyowner (i.e., the seller) receives less cash than in an all-cash transaction, still retains some insurance coverage, and also eliminates any future premium obligations.

You can look at retained death benefits as the ability for the policyowner to share a portion of the cost of their life insurance policy with an investor (i.e., the buyer). Once the offer is accepted, the buyer takes over the responsibility of all payments. In the event that the original policyowner dies, their beneficiary receives their retained percentage of the death benefit, while the investor receives the balance.

In short, the main advantage of a retained death benefit is that it removes the premium burden while still allowing the policyowner to retain coverage.

How does a retained death benefit work?

When you contact Coventry Direct, we’ll work with you to understand your needs and come up with a plan that works for you. We’ll look at the details of your policy, the insured’s health, and specific goals regarding the transaction to determine the life insurance policy’s worth.

If you qualify to sell your policy and choose a Retained Death Benefit, Coventry will seek to understand the amount of coverage you require and determine the best compensation structure to meet your needs. Getting started is as easy as clicking here.

Important to note: Every policy is unique and so is every policyowner’s situation. It’s important to speak with a financial advisor to come up with a solution that will benefit you and your family the most.

Retained death benefit example

Take Patricia for example. While her policy has a face value of $1 million, her monthly payments have put a strain on her finances. She has two options in electing a retained death benefit:

  1. Keep a portion of the death benefit and no longer pay premium obligations.
  2. Receive less cash from the death benefit, retain some coverage, and no longer have to pay premium obligations.

Whichever option Patricia chooses, there are benefits to her, her beneficiaries, and the buyer. Remember Patricia, like any policyholder, also has a third option wherein she can sell the life insurance policy for cash.

Does a retained death benefit make the most sense for your situation

If you can no longer afford paying for your life insurance, or if it no longer makes sense for you to have your policy, a retained death benefit is an option worth looking into. Regardless of the size of your policy, ensuring the security of your loved ones’ financial well-being is important. Interested in learning about how to sell your life insurance policy? See if you qualify.

Editorial Disclaimer: Coventry Direct, a member of the Coventry group of companies, educates policyowners and insureds interested in learning about life settlements. Resources and publications are researched, written and updated by in-house experts to reflect the most up-to-date industry knowledge.

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