The general process of traditional life settlements consists of an investor taking over the premium payments and ownership of a life insurance policy, while the previous owner of the policy receives a lump sum of cash. A traditional life settlement is a great option for someone who can no longer afford their premium payments and have an immediate need for money. However a retained coverage insurance settlement is perhaps a good option for policy holders who no longer want to pay premiums but who still want to be able to leave money behind for their loved ones upon their death.
A retained coverage life insurance settlement is a process by which the owner of a life insurance policy turns over the ownership of the policy to an investor who then takes over the premium payments of said policy. In some cases, the initial owner of the policy then receives a small portion (usually less than 10%) of the settlement in the form of a lump sum. Upon the death of the policy seller, their irrevocable beneficiary, receives a portion of the life insurance benefits while the investor receives the remaining amount.
In terms of an insurance policy an irrevocable beneficiary is a person that the initial policy owner selects to receive their death benefits. The right of this beneficiary cannot be revoked without the consensus of the initial policy owner. In a retained coverage insurance settlement, the irrevocable beneficiary is the person who receives a portion of the death benefits from the new policy owner following the death of the policy seller.
The investor, or new policy owner, takes ownership over the policy and is therefore required to continue to make the premium payments until the death of the policy seller. In the unlikely event that the investor stops making the payments before the death of the seller, the seller and their assigned irrevocable beneficiary have the right to reclaim the policy (free of charge), but must then take over the premium payments.
Ultimately a retained coverage insurance settlement could potentially be the most sensible option for many people. If you have or are experiencing any of the following issues, you may want consider this type of settlement.
- You can no longer afford to continue paying monthly premiums
- You have had a recent change in marital status or estate planning issues
- Your policy is no longer needed or wanted due to health or financial reasons
One of our most recent examples of a retained coverage insurance settlement, came when one of our customers (a 67 year old male), with a $3 million life insurance policy, decided that he wanted to sell his policy. After obtaining the policy just two years before, the customer’s state tax exception law changed and as a result he felt that the policy was no longer needed. One of our advisors here at Genesis was able to procure $900, 000 for the customer’s irrevocable beneficiary, and the premium payments were taken over by the new policy holder. Needless to say, the customer was completely satisfied.