When life insurance becomes a financial burden instead of a safety net, many seniors and their advisors begin exploring life settlements as a solution. But what if the policyholder doesn’t need a big payout today—but would still like to preserve some benefits for their loved ones while eliminating costly premiums?
Enter the Retained Death Benefit (RDB) option—a lesser-known, but powerful strategy within the life settlement marketplace that can provide both relief and long-term value.
In this post, we’ll break down what the retained death benefit is, who it’s best suited for, how it compares to a traditional life settlement, and why it’s gaining traction with policyholders and advisors alike. We’ll also walk you through a real case study to illustrate its potential impact.
What Is a Retained Death Benefit (RDB) Life Settlement?
A retained death benefit life settlement is a type of transaction in which the policyholder sells their life insurance policy, but instead of receiving all of the value in cash upfront, they retain a portion of the death benefit to be paid to their beneficiaries upon their passing.
The policy ownership and beneficiary designations are changed—just like in a traditional life settlement. However, the client agrees to forgo a large cash payout now in exchange for ongoing, premium-free death benefit coverage for their heirs.
It’s a hybrid solution, offering both immediate financial value and long-term planning advantages. And in many cases, the value of the retained death benefit is significantly greater than the lump sum cash offer would be.
The Mechanics of an RDB Transaction
Here’s how a retained death benefit option typically works:
- Evaluation – The insured, or their advisor, submits the policy for review. A third-party life settlement broker or provider assesses the policy’s value.
- Offer Presentation – If eligible, the client may receive one or more offers:
- A traditional lump sum life settlement offer.
- An RDB offer with partial cash + retained death benefit.
- Policy Transfer – If the client accepts the RDB offer, ownership and beneficiary rights are transferred to the investor or provider.
- Premium Responsibility Shifts – The investor becomes responsible for paying all future premiums.
- Payout at Death – Upon the insured’s death, the investor receives their share of the death benefit, while the designated beneficiaries receive the agreed-upon retained portion—typically paid directly from the carrier.
It’s a way to de-risk without walking away from the policy altogether.
Who Benefits from a Retained Death Benefit?
The retained death benefit option is ideal for a very specific kind of client:
- Older seniors (generally age 75+)
- Those with high-value life insurance policies, especially Universal Life or convertible Term
- Clients who no longer need full coverage but still want to leave a legacy
- Individuals who are tired of paying expensive premiums
- Families who don’t need a large cash lump sum now, but want to preserve some estate value
- Policyholders who are in decent health but may not qualify for the highest offers in a traditional settlement
Think of it as a strategic compromise between dropping the policy or cashing it out entirely. It allows families to unlock financial flexibility without abandoning the idea of passing something on.
Real-Life Example: Solving a Financial Strain, Preserving a Legacy
Let’s take a look at a real scenario that illustrates how powerful this option can be.
We recently worked with the family of an 88-year-old male who owned a $1.5 million life insurance policy. The policy had been in place for decades, and the coverage was originally intended to protect the estate and provide for heirs.
However, as time passed, the annual premium cost had climbed to nearly $150,000 per year. The family was finding it increasingly difficult to justify the ongoing expense, especially since their financial picture had shifted.
Still, they weren’t ready to give up on the idea of leaving a legacy. They didn’t want to just surrender the policy or let it lapse—but the premium obligation was no longer sustainable.
We presented them with several options, including a traditional cash life settlement and a retained death benefit settlement.
The Chosen Solution: RDB
After reviewing the options, the family chose the retained death benefit path. Here’s what they received:
- $100,000 in immediate cash
- $500,000 in retained death benefit (to be paid to the beneficiaries upon the insured’s passing)
- $0 in future premiums – the investor took over all policy costs
Instead of continuing to spend $150,000/year to keep the policy active, they received instant liquidity and ensured that a meaningful portion of the benefit—$500,000—would still go to the family.
In the family’s words, this option was “a good hedge”—offering financial relief now, while maintaining long-term protection for the estate.
RDB vs. Traditional Life Settlement: What’s the Difference?
Here’s a quick comparison between a retained death benefit and a standard life settlement:
| Feature | Traditional Life Settlement | Retained Death Benefit (RDB) |
| Payout Type | Lump sum cash | Partial cash + retained death benefit |
| Premiums | No longer paid by client | No longer paid by client |
| Estate Benefit | None | Some benefit retained for heirs |
| Ideal Client | Needs immediate liquidity | Wants coverage without paying premiums |
| Death Benefit | 100% to investor | Split between investor & beneficiaries |
| Tax Consideration | May trigger gain | RDB portion generally not taxed until death |
The choice between the two depends on the client’s goals: do they need maximum cash now, or would they prefer to maintain some benefit for their family?
Why More Advisors Are Exploring the RDB Option
Many financial professionals and insurance advisors are surprised to learn that life settlements aren’t an “all or nothing” proposition. The retained death benefit option opens up a new avenue for client conversations and problem-solving.
Here are a few reasons why more advisors are offering this solution:
1. It Solves the “Premium Pain” Problem
Clients with large policies often reach a point where premiums feel more like a liability than an asset. RDB eliminates that burden.
2. It Preserves Legacy
Rather than letting a policy lapse or accepting a low surrender value, clients can still pass along a substantial amount to their heirs.
3. It Aligns With Long-Term Planning
RDB strategies fit neatly into estate and retirement planning. They can support goals like charitable giving, multi-generational wealth transfer, or replacing lost income.
4. It Offers More Flexibility
The market has matured. Investors are more creative with deal structures. Clients can negotiate the retained portion to suit their needs.
5. It Enhances the Advisor’s Value
When you introduce creative options like RDB, you strengthen your relationship with clients and demonstrate your commitment to their bigger financial picture—not just today’s crisis.
What to Watch Out For: Tips for a Successful RDB Transaction
While the retained death benefit strategy has clear advantages, there are a few things to be mindful of:
- Carrier Reliability – Make sure the death benefit will be paid directly by the insurer and not contingent on the investor.
- Documentation Clarity – Ensure all terms are clearly defined, especially around beneficiary designations.
- Tax Implications – Work with a CPA or estate planner to understand how the transaction will impact the client’s tax situation.
- Legitimate Providers – Always use reputable life settlement brokers or providers with a track record of compliant, secure transactions.
- Ongoing Communication – Keep heirs informed. They will be dealing with the payout at some point, so transparency helps avoid surprises.
Final Thoughts: A Win-Win for the Right Client
The retained death benefit isn’t for everyone—but for clients with the right profile, it can be a powerful tool. It bridges the gap between financial relief and long-term planning.
It allows a client to say, “I’m done paying premiums. I’d like some cash now. But I still want to leave something behind.”
At SFS Life Settlements, we’ve seen firsthand how this strategy can reduce stress, unlock value, and keep families on track with their goals. If you have a client with a life insurance policy they no longer want or need—but they’re not ready to walk away entirely—the retained death benefit option could be the perfect fit.
Let’s Talk
If you’d like to learn more about the retained death benefit option, or explore whether your client might qualify, we’d be happy to walk you through the process.