Is a Retained Death Benefit Right for You? Key Considerations
When considering a life settlement, most policyholders think of it as an all-or-nothing decision: you sell your life insurance policy and receive a lump sum cash payout, giving up the entire death benefit in the process. While that’s a common and effective strategy for many, it’s not the only path available.
If you’re someone who wants to eliminate the burden of paying life insurance premiums but still wishes to leave something behind for your loved ones, there’s another option that’s becoming increasingly popular—Retained Death Benefits (RDBs).
A retained death benefit gives you a middle ground: you can still benefit financially from your policy today, without losing the ability to provide for your heirs later on.
But how do retained death benefits work? And how can you tell if they’re the right choice for your financial and legacy planning goals?
In this article, we’ll walk you through the basics of RDBs, including how they function, who they’re ideal for, their pros and cons, and what to consider before choosing this flexible alternative to a full cash life settlement.
What Is a Retained Death Benefit?
A Retained Death Benefit (RDB) is a life settlement arrangement that allows you, the policyholder, to keep a portion of your life insurance policy’s death benefit intact for your beneficiaries—even after selling the policy to a third-party investor.
Here’s how it works:
You sell your policy to a licensed buyer (usually an institutional investor).
The buyer takes over ownership of the policy and becomes responsible for paying all future premiums.
In return, you receive a customized payout, which can include:
A smaller upfront cash payment, and
A contractually guaranteed portion of the death benefit that will be paid to your chosen beneficiaries when you pass away.
The amount you retain is agreed upon in advance and paid directly to your beneficiaries—typically income tax-free, just like a traditional life insurance payout.
This structure is especially helpful for individuals who want to:
Stop paying premiums they can no longer afford,
Access financial support while living, and
Still leave something meaningful behind for family members, loved ones, or even a charitable cause.
How Does a Retained Death Benefit Work?
Let’s look at a simple example to help bring the concept to life:
Imagine you have a $1 million life insurance policy, but continuing to pay the premiums has become a financial strain. You no longer need the full death benefit, but you’d still like to provide something for your children or grandchildren.
Instead of selling the policy entirely for a cash lump sum, you explore a retained death benefit settlement:
After evaluating your policy and health profile, a buyer agrees to purchase the policy and cover all future premium costs.
In return, you agree to retain $200,000 of the death benefit for your beneficiaries.
The buyer receives the remaining $800,000 payout when the policy matures (i.e., when you pass away).
As a result, you no longer owe any premiums, you may receive some cash now (depending on how the deal is structured), and your loved ones will still receive $200,000 when the time comes—all without you having to maintain the policy yourself.
This type of hybrid settlement strikes a balance between immediate financial relief and long-term family support.
Pros and Cons of Retained Death Benefits
✅ Pros
Preserve a Legacy
Keeps a portion of your life insurance in place for loved ones or causes you care about.Eliminate Premiums
You no longer have to pay out of pocket to maintain your policy.Flexibility
Can be structured with multiple beneficiaries or combined with a partial cash payout.Tax Efficiency
The retained death benefit is typically paid tax-free to beneficiaries.
⚠️ Cons
Reduced Upfront Cash
You may receive less money upfront compared to a full life settlement.Complex Structuring
Agreements can be more complicated and require expert negotiation.Limited Availability
Not all policies or health profiles will qualify for an RDB offer.Estate Planning Coordination
You’ll need to ensure your estate plans reflect the change in ownership and benefit structure.
Key Considerations Before Choosing an RDB
1. Your Immediate Financial Needs
If you need significant funds now—for medical bills, long-term care, or living expenses—a full cash settlement might be more suitable. But if your immediate needs are moderate, retaining a death benefit could provide balance between current support and future legacy.
2. Beneficiary Goals
Do you have specific people or causes you want to support after your passing? Retaining part of your death benefit allows you to leave a lasting impact, without burdening your finances today.
3. Health and Policy Details
Your life expectancy, the size of your policy, and the cost of premiums all influence what kind of RDB offer you might receive. Working with a trusted life settlement broker—like Summit Life Settlements—ensures you receive competitive bids and clear comparisons.
4. Tax Implications
While RDB proceeds are generally tax-free to beneficiaries, any partial cash settlement you receive could be taxable. A tax advisor can help you understand the specifics based on your personal situation.
How Summit Life Settlements Can Help
At Summit Life Settlements, our mission is to help policyholders like you uncover the full financial potential of your life insurance policy—whether that’s through a traditional life settlement, a Retained Death Benefit (RDB) structure, or a hybrid solution tailored to your goals.
Navigating the Life Settlement market can feel overwhelming—but you don’t have to do it alone. When you partner with Summit, you gain an experienced advocate who puts your needs first and ensures every option is clearly explained and carefully evaluated.
Here’s what you can expect from working with us:
✔️ Objective, Transparent Guidance
We’re not here to push you into one option over another—we’re here to empower you with clear, honest information so you can make the best decision for your future. Whether you’re comparing a lump sum cash offer, a retained death benefit, or a combination of both, we break it all down in a way that’s easy to understand.
You’ll always know the pros and cons of each path before you make any commitment.
✔️ Access to a Nationwide Marketplace of Licensed Buyers
Your life insurance policy is valuable—and you deserve to get the maximum value possible. That’s why we submit your policy to a wide network of vetted, licensed institutional buyers who actively compete to make you the best offer.
This competitive bidding process means you get more options, better terms, and stronger negotiating power. Whether you’re looking for cash now, a death benefit later, or both, we help structure the offer that fits your needs best.
✔️ Zero Upfront Costs—Ever
You’ll never pay anything out of pocket to work with us. There are no application fees, no hidden costs, and no surprises. Our compensation comes only if and when a successful settlement is completed, and it’s fully disclosed and built into the offer—so you can review everything upfront and make an informed decision.
✔️ Tailored Retained Benefit Structures
If your goal is to keep part of your death benefit for your loved ones, we’ll work closely with you to structure a retained death benefit plan that reflects your priorities. You decide how much to retain, who should receive it, and how it fits into your overall legacy goals.
We also help you explore hybrid options that combine a partial payout now with a retained benefit later—giving you the best of both worlds.
✔️ Complete Process Management for Peace of Mind
From the first conversation to the final paperwork, our experienced team handles everything for you. We’ll collect any required medical records, coordinate directly with buyers and insurance companies, and walk you through each step so nothing falls through the cracks.
You can count on us to take care of the details while you focus on what matters most—your health, your family, and your financial peace of mind.
Let’s Explore Your Options Together
Whether you’re ready to sell or just starting to explore your options, Summit Life Settlements is here to guide you—honestly, professionally, and with your best interest at heart.
Reach out today or try our free policy calculator to see what your life insurance may be worth. Let’s help you unlock its value and make sure it serves you—and your loved ones—the way it was always meant to.
Is a Retained Death Benefit Right for You?
Retained death benefits offer a thoughtful middle ground: you can offload the financial burden of your policy while still leaving something behind for your loved ones. It’s a particularly compelling option for individuals who no longer need the full coverage amount but still want to maintain a safety net for heirs.
If you’re considering a life settlement, explore all your options—including RDBs. At Summit Life Settlements, we guide policyholders through every step of the process, helping them evaluate the full and retained benefit options so they can make informed, confident decisions.
Ready to Learn More?
Contact Summit Life Settlements today or use our free policy calculator to find out what your policy may be worth. We’ll help you determine whether a Retained Death Benefit—or another strategy—best fits your goals.
FAQS
1. What is a retained death benefit?
A retained death benefit (RDB) is a life settlement arrangement where the policyholder sells their life insurance policy but keeps a portion of the death benefit for their beneficiaries. The buyer takes over premium payments and receives the remaining portion of the death benefit when the insured passes away.
2. How is a retained death benefit different from a full life settlement?
In a full life settlement, you receive a lump sum cash payment and the buyer receives the entire death benefit. With an RDB, you receive either a smaller cash payment or none at all, but your beneficiaries receive a guaranteed portion of the death benefit when you pass.
3. Who is a good candidate for a retained death benefit?
Retained death benefits are ideal for individuals who:
No longer want to pay life insurance premiums
Want to preserve a portion of their policy for heirs
Don’t need or want a large upfront cash payout
Have policies with significant face value or favorable life expectancy underwriting
4. Do I still have to pay premiums after choosing a retained death benefit?
No. Once the transaction is complete, the buyer takes over responsibility for all future premium payments. You retain no financial obligation.
5. How much of the death benefit can I retain?
The retained amount is negotiable and depends on several factors including:
Policy face value
Your age and health
Market interest from buyers
Structure of the overall offer
Some sellers retain as little as 10%, while others may negotiate up to 50% or more, depending on the situation.
6. Will my beneficiaries still receive the retained death benefit tax-free?
Yes, in most cases, the retained portion of the death benefit is paid tax-free to your named beneficiaries, just like a traditional life insurance payout. Always consult a tax advisor to confirm your specific situation.
7. Can I receive both a cash payment and a retained death benefit?
Yes. Some transactions include a hybrid structure—where you receive a smaller lump sum up front and still retain a portion of the death benefit. This can provide current financial relief while still supporting your heirs.
8. What types of policies qualify for retained death benefits?
Generally, these policies are eligible:
Universal life
Convertible term life (if converted)
Whole life (in some cases)
Your policy must typically have a face value of $100,000 or more and be beyond the contestability period (usually 2 years old).
9. Does my health impact my ability to retain a death benefit?
Yes. Buyers assess life expectancy when evaluating offers. Shorter life expectancies typically result in higher offers and more flexible options for retaining a death benefit. That said, it’s still worth exploring even if you’re in good health—especially if the policy is no longer needed or sustainable.
10. How does Summit Life Settlements help with retained death benefits?
Summit Life Settlements works on your behalf to:
Gather and package your case for evaluation
Present your policy to multiple licensed institutional buyers
Negotiate offers that include retained death benefits, hybrid payouts, or full cash options
Help you understand and compare offers with complete transparency
Our goal is to help you get the highest value while aligning with your financial goals and legacy wishes.
