Life insurance has long served as a foundational tool in estate and business planning. However, today’s high-net-worth (HNW) clients face evolving dynamics and ever-changing challenges, including an uncertain interest rate environment, persistent inflation concerns, global economic fluctuations, and legislative changes such as the Tax Cuts and Jobs Act of 2017 and the recent One Big Beautiful Bill Act. The latter not only increased federal estate tax exemptions but also made those expanded exemption amounts permanent. As a result, many life insurance policies originally purchased to provide estate tax liquidity may no longer be needed, prompting more policyowners to explore life settlements to unlock value from coverage that no longer serves its original purpose.

The recent legislative changes noted above, and the evolving challenges they present, underscore the importance of regularly reassessing whether existing life insurance policies still align with a client’s needs and objectives. Most estate planners are familiar with the life settlement market as a solution for policyowners to completely liquidate an unneeded policy. It is equally important to consider options that preserve some level of life insurance coverage in situations where a death benefit need may still exist. Estate planners should be mindful of Retained Death Benefit (RDB) structures, which may allow a policyowner to maintain a portion of the death benefit while eliminating ongoing premium obligations.

A Flexible and Often Overlooked Opportunity: Retained Death Benefit Strategies

RDB arrangements represent a highly flexible, customizable, and often underutilized alternative to lapsing, surrendering, or selling a policy for a one-time cash payout. Rather than simply liquidating a policy for its cash surrender or market value, RDB structures may allow policyowners to:

• Eliminate premium obligations: Policyowners may be able to retain some death benefit coverage for selected beneficiaries and reallocate future premium dollars to other priorities.
• Right-size their Coverage: Policyowners can adjust their coverage to fit current goals, revised legacy planning, or shifting estate tax exposure. Coverage can also be structured dynamically—scheduled to change over time in line with expected needs—providing greater flexibility and customization.
• Preserve their Legacy: Policyowners may be able to maintain a meaningful benefit for heirs or charitable entities, enabling them to support philanthropic and familial objectives.

This RDB strategy may be particularly effective when estate tax liquidity concerns have eased, but clients wish to maintain a legacy benefit without continued premium payments. Initial conversations should start with a comprehensive policy review and valuation, progressing into an exploration of available options. As clients learn of the true market value of their policies, consultative discussions naturally open the door to evaluating potential RDB structures including hybrid solutions, which combine an RDB with a cash payment. This collaborative process enables advisors and clients to identify optimal strategies – whether the goal is finding immediate liquidity, continued partial coverage, or a hybrid structure that includes both.

A Strategic, Flexible Exit

Well-structured RDB arrangements offer a compelling combination of liquidity, flexibility, and legacy preservation, leveraging assets clients already own. For many HNW clients, this may yield a significantly better outcome than surrendering a policy or accepting a lump-sum settlement, especially when the original purpose of the life insurance (e.g., generating liquidity to pay estate tax) is no longer relevant.

RDB transactions often emerge as the most appropriate solution after a consultative dialogue with a licensed life settlement provider. Direct engagement gives providers the ability to understand the client’s full objectives and circumstances, allowing for more customized solutions that may not surface in a purely bid-driven cash sale process. The best solution may not simply be obtaining the highest cash payment.

Case Studies:

Clients may initially submit a policy for a traditional cash sale. But once their broader goals are understood, a more tailored RDB solution may become apparent.

Rethinking the Cash Sale

For example, a 76-year-old policyowner with a $5 million universal life policy initially focused on a potential cash settlement to address an immediate liquidity need. Being reluctant, however, to give up the entire $5 million of coverage, he still wanted to provide long-term security and a legacy for his family. A comprehensive planning review revealed that eliminating the ongoing premium payments was sufficient to help meet the near-term liquidity goals. While collaborating closely with his advisor, they explored several hybrid options combining upfront cash with retained coverage. A pure retained death benefit proved to be the best fit and provided the best outcome, preserving $1.5 million in coverage with no future premium obligations.

Tailored Structuring for Estate Continuity

In another example, a 73-year-old family business founder held a $3 million universal life policy. The family’s estate plan had been thoughtfully developed over many years, and while the insurance remained important, increasing premiums were a problem. Initial discussions between the advisor and client focused on a full cash settlement. However, after reviewing their estate continuity goals, a graduated RDB solution was structured for the transaction.

A $2.1 million death benefit was retained for the first five years, reducing to a $1.3 million death benefit for the next five years, and finally leveling off at $1 million of death benefit thereafter. This structure eliminated ongoing premium obligations while preserving meaningful protection for the family, illustrating how RDB transactions can balance immediate financial relief with long-term estate planning objectives.

Preserving Coverage, Managing Premiums

In a third example, a 70-year-old female client owned two identical $1.5 million universal life policies. The family wanted to keep the coverage, but the rising premium costs made doing so unmanageable. Faced with limited options, the family reviewed an RDB option for one of the policies that would enable them to maintain $500,000 of coverage with no future premiums. The second policy was retained and left intact, resulting in $2 million of total coverage with ongoing premium obligations only on the policy that was retained. This solution effectively reduced total coverage by only one-third (from $3 million to $2 million) but lowered the annual premium burden by half.

A Growing Role in Modern Estate Planning

The tax and financial landscape will undoubtedly continue to evolve, making it essential for advisors, attorneys, and other fiduciaries to stay informed about all available client options. RDB and hybrid liquidity solutions are increasingly entering the mainstream as HNW clients demand custom, holistic planning approaches that create lasting value.

As the needs of clients grow more complex, so too must the solutions offered by their advisors. By remaining alert to creative approaches like RDB strategies, estate planners are better positioned to deliver nuanced advice that adapts to changing financial, legislative, and personal circumstances. Ultimately, an open-minded approach to life insurance can help ensure that clients’ long-term goals—for liquidity, flexibility, and legacy—remain within reach.

Jim Dodaro is the Chief Distribution Officer at Coventry First & Scott Etish is the Director of Strategic Partnerships at Coventry First.

Disclaimer: The case examples described above are intended for use by insurance, estate planning, and financial planning professionals. The examples are based on historical transactions and are presented for illustrative purposes only. Certain details may be summarized or approximated and should not be relied upon as complete or exact records of any particular transaction.