A retained death benefit life settlement allows the seller to retain the contractual right to death benefits, such as a life insurance policy, to have the purchaser maintain the policy and pay some death benefits to the seller. However, these policies can be risky for sellers. In addition to the risk of the policy lapsing despite notice requirements to the seller, tax consequences can vary by each agreement and are often unfavorable for sellers. The tax consequences depend on how the transaction is treated, such as being considered an annuity or loan or other type of transaction. These policies can be complicated, and require careful consideration and balancing of risk versus reward.
See Robin S. Weinberger and Peter N. Katz, Retained Death Benefit Life Settlements: Considering the Uncertainties, Life Health Pro, Nov. 21, 2014.
Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.
