Life Settlements can come in different forms. Not all states or cases will necessarily allow for any particular type of life settlement. Usually, the seller of a policy determines which type of life settlement is the best solution for their circumstances. For informational purposes, here are the most common types of life settlement transactions.
Traditional Life Settlements
This is the most common form of life settlement and is typically what comes to mind when one thinks about the transaction. In a traditional life settlement, the licensed life settlement provider (aka the buyer) will pay the policy owner a cash settlement 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. In this type of life settlement, the seller received all possible benefit from the policy during the time of settlement. They will receive nothing at the time of the insured’s death.
Retained Death Benefit
In an RDB, the licensed life settlement 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 life settlement. 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.
Hybrid Life Settlements
In this option, the policy sellers can receive a combination of traditional life settlement and retained death benefit. This can provide some needed cash now and retain some death benefit for the family or trust.