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Common Life Insurance Settlement Options

Your beneficiary might receive the death benefit in a single lump-sum, for example, or as a lifetime stream of payments. Normally, you as the policyholder would choose the structure of the life insurance settlement, but your policy may allow your beneficiary binary option risk free change it later.

Life insurance settlement options are notoriously confusing, particularly when you try to compare them. All you have to do is review this in-depth guide we created to help settlement options like you make an informed choice about life insurance settlement.

Read on for an overview of the six most common life insurance payout options. Lump-sum payment Lump-sum payment is the simplest and most common insurance type of life insurance settlement. Once the insurance company receives and validates the life insurance claim, your beneficiary will be paid the death benefit in a single, tax-free payment.

Settlement Options on Life Insurance Policies August 25, by Brandon Roberts The settlement option on a life insurance policy instructs the life insurance company how to pay the death benefit at policy claim time. Traditionally, the policy owner chooses the settlement option, but the beneficiary has the option to change it at claim time. In some unique situations, the settlement option selected by the policy owner is irrevocable and the beneficiary must receive the death benefit under whatever payment schedule settlement options policy owner chose. Under this option, the life insurer pays the beneficiary the lump sum total death benefit of the policy.

As with all life insurance settlements, there are no restrictions on how the money is used. The beneficiary could pay off debt, invest, or spend the entire death benefit on boats and cars.

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Note that if the money is invested in some way, any earnings from that investment would be considered taxable income. As you might guess, lump-sum payments are best suited for beneficiaries you trust to be responsible.

Contact Us Life insurance can provide money to your loved ones at a critical time. When an insured person dies, their beneficiary is then eligible to receive the policy's death benefit. Some people may think of a life insurance death benefit as a lump-sum payment, but insurers typically offer a variety of life insurance settlement options. Here's some information on how death benefits typically work and some of the settlement options that may be available to you as the beneficiary.

If you are concerned your beneficiary might spend the funds too quickly, look to a different type of settlement that would provide a series of smaller payments instead. Interest income also known as interest only With an interest-only settlement, the insurance company holds the principal of the death benefit and pays any earnings on that amount to the beneficiary.

What are Life Insurance Settlement Options? |

You can think of this settlement format as a savings account you fund for your loved one. Your beneficiary will receive regular interest payments and may be able to take larger withdrawals upon request. But no large cash payment is made up front, so you can worry less about your beneficiary spending the money all at once. This payout option is appropriate when the beneficiary is either very young or financially inexperienced.

You should ask your insurance company to explain how the death benefit will be invested after you are gone.


If you can estimate the growth rate, you can then project the size of the interest payments that your beneficiary would receive. Interest accumulation An interest accumulation settlement is not really a payout at all.

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In this case, the insurance company hold the funds indefinitely on behalf of the beneficiary. The interest earned is added to the account balance.

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If the beneficiary needs to access the funds, he or she could request a withdrawal. Fixed period The fixed period life settlement option distributes the death benefit plus settlement options earned interest over a specific period of time. That monthly check settlement options as tax-free income and can help your beneficiary cover living expenses. This format is particularly appropriate when you want to ensure your beneficiary can keep making mortgage payments.

You could also specify a contingent beneficiary, who would continue receiving the payments if the primary beneficiary passes away. Fixed amount Settlement options fixed amount settlement structures the benefit as a fixed settlement options payment.

That payment will last until the principal and any earned interest are depleted. Your beneficiary may have the option to raise or lower the monthly amount.

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  • In return, you can receive up to 26 times more cash than you would if you were to surrender your policy and get the cash value.

The fixed-amount settlement does discourage your beneficiary from spending the benefit all at once, but the money can still run out quickly if the payment is too high. Life income also known as life-only or life annuity The life income settlement format provides a stream of payments that last until the beneficiary passes away. A life annuity provides a reliable source of income, but there are drawbacks.

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If you request settlement as life-only, your beneficiary may not be able to change to a different settlement format. Extra withdrawals would not normally be allowed, either. Younger beneficiaries would get a longer stream of smaller payments.

Older beneficiaries would get a shorter stream of larger payments. For that reason, life annuity settlements are often more advantageous to older beneficiaries. You can do this through a life settlement, which is the sale of your life insurance to a third-party for cash.

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The proceeds robots for working on binary options a life settlement are paid to you directly in one lump-sum payment, and there are no restrictions on how you use the funds. You could set up an investment account with named beneficiaries, for example.

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You could also pay off debt, earmark settlement options money for your future healthcare expenses, or buy an RV. Be aware, though, that some of your life settlement proceeds may be taxable. Not everyone qualifies for a life settlement, however. For example, life insurance buyers expect selling policyholders to be at least 65 years old.

What is the Purpose of the Settlement Option?

And while most types of life insurance are sellable, some are not. Harbor Life Settlements can review these qualifications with you and also estimate the value of your policy, for settlement options and without obligation.

Reach out to our team here or by phone at When she's not writing, she can be found riding a horse in the country or shopping online for clothes.

When the named insured on a life insurance policy dies, the beneficiary or beneficiaries is eligible for the policy death benefit. Normally, there are a number of different settlement choices that are available to the beneficiary beneficiaries. In many circumstances, beneficiaries will select the lump sum payment.

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