You could just say that it’s no longer your father’s life insurance policy — it’s much better. Retained death benefit options are simply the most exciting development in the life insurance settlement industry in years and a powerful new retirement planning tool.
Seniors now have the ability to sell a portion of a life insurance policy for cash and retain a percentage of the face value payout for their loved ones. All while empowering them to reduce debt, pay medical bills, pay for long-term care, fund a retirement plan, or purchase a new policy.
So what’s new? New options. For decades, many seniors have taken advantage of their ability to sell unwanted or unneeded life insurance policies. In fact, laws in some states require agents to offer the settlement option for surrendered or soon-to-be-lapsed policies.
But consider policyholders in their 70s and in relatively good health. If their spouse is no longer living, or their estate plans have changed, what to do with life insurance purchased years ago that is no longer desired?
Settlement is a long-standing and successful alternative, demonstrated by thousands of transactions, and a better option than surrendering or allowing a policy to simply lapse. Selling the policy to a settlement company delivers cash to the insured. But the company becomes the owner, makes the future premium payments and receives the death benefits.
For seniors, retained death benefit options offer a superior alternative when selling the policy. They gain immediate cash, retirement flexibility and peace of mind, while also retaining a portion of the policy’s payoff value. The insured is no longer responsible for premium payments but gets to keep part of the death benefit in his or her estate.
Here’s how it works:
The best candidates are seniors in their 70s with permanent life insurance policies between $250,000 and $10 million, and life expectancy between four and ten years. They submit applications to a life settlement provider that offers retained benefits.
After initial review and evaluation of the policy and the insured, a preliminary offer is made, usually within a week. Settlements are usually between 10 and 20 percent of the policy’s face value. As each situation is unique, if retained benefits are part of the offer, the retained portion will always be 50 percent or less of the face value. Consider this 72 year-old policyholder:
- $1,000,000 face value whole life policy
- Life expectancy of eight years
- Purchase offer of $100,000 paid to the insured
- Beneficiary retained death benefit of $400,000
- No future premiums due from the insured — ever.
After submission of the application, the insured can expect to receive offers within a few days. From start to finish, the entire process typically takes between 90 to 120 days. For seniors with pressing financial needs, or those desiring the means to supplement cash to get more out of their retirement years, retained death benefit options are a simple, safe and effective choice.
Note that the policy seller designates the beneficiary for the retained death benefit, and without the beneficiary’s permission, this cannot be changed.
Those interested in selling a policy and retaining a portion of its death benefit are advised to consult with their financial advisor. As these are transactions performed at the state level and regulations vary from state to state, it’s imperative to understand the specific regulations of the governing state.
Financial advisors, planners and seniors owning life insurance policies will soon be hearing more about retained death benefit options as part of a life insurance policy settlement.
But in all cases, the peace of mind for seniors is real and immediate. Greater liquidity for their golden years, while maintaining a portion for the loved ones they’ll leave behind.
Stephen E. Terrell is president of LifeGuide Partners, LLC, a company that generates current market values for life insurance policies for agents and their senior life insurance clientele. He can be reached at (888) 484-3350 and on Twitter at @Tweet_Stephen.