Types of Life Insurance Options

Life insurance transactions can come in different forms. Not all states or cases will necessarily allow for any particular type. Usually, the seller of a policy determines which type of life settlement is the best solution for their circumstances. Each case is unique, and we will work with you to find the best option for your situation!

For informational purposes, here are the most common types of transactions:

Retained Benefit

Traditional

Hybrid

Traditional

A traditional life insurance policy provides the policyholder with a guaranteed amount to pass on to their beneficiaries, regardless of how long they live, provided the contract is maintained throughout its entirety. Most policies also offer a withdrawal clause, which allows the contract holder to cancel their coverage and receive a cash surrender value.

This is the most common life insurance option, and is usually what comes to most people’s minds when thinking about the transaction.

In the case of a traditional policy, a licensed provider (the buyer) will pay the policy owner a cash amount above the surrender value, but below the death benefit.

The premiums will then be paid by the buyer, or its financing entities, for the remainder of the insured’s life.

This entity will receive the face value of the policy upon the death of the insured. The seller received all possible benefits from the policy, and they will receive nothing at the time of the insured’s death.

  • Cash Lump Sum Now
  • No Future Payments
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Retained Death Benefit

A retained death benefit is a payout to the beneficiary of a life insurance policy, annuity, or pension when the insured or annuitant dies. For life insurance policies, death benefits are not subject to income tax and named beneficiaries ordinarily receive the death benefit as a lump-sum payment.

The policyholder can structure how the insurer pays the death benefits. A popular example of this is when a policyholder may specify that the beneficiary receives half of the benefit immediately after death, and the other half a year after the date of death.

In a retained death benefit, the licensed provider or its financing entity will take over only the policy premiums for the seller.

The seller will receive no cash now. The policy beneficiaries will be assigned a retained death benefit amount directly from the insurance carrier which will be paid upon the death of the insured.

This amount is usually much more than what the seller receives in a traditional option.

The original owner will no longer be required to pay the premiums and will receive no cash now, but will receive a portion of the death benefit from the insurance carrier at the time of the insured’s death.

This option could be beneficial for those who find the premiums to be too expensive but still want their beneficiaries to receive a portion of the death benefit.

  • Guaranteed Percentage at End of Policy
  • No Future Payments
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Hybrid Option

For the hybrid option, the policy sellers can receive a combination of traditional life options and retained death benefits.

With this option, you receive a cash payment now, your beneficiary receives a guaranteed percentage of the benefit when the policy ends, and you have no further obligation to pay future premiums.

A few pros to the hybrid option include: your premium is guaranteed on hybrid products and will not increase over time; the products offer flexible premium payment options, meaning you can make one lump-sum payment or pay premiums over time; it can be easier to qualify for coverage because the underwriting can be less stringent with a hybrid policy; it builds cash value, which you can tap to cover expenses other than long-term care.

This can provide some needed cash now and retain some death benefit for the family or trust.

  • Guaranteed Percentage at End of Policy
  • Cash Lump Sum Now
  • No Future Payments
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