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.
Interest Only Settlement Option
This happens when the overall amount of the funds are settled at one time in one payment. Proceeding with this choice can often help the beneficiary in choosing to pay off large obligations such as funeral and burial expenses, as well as any other final debts of the deceased.
If the beneficiaries would prefer not to collect the whole amount of the death benefit at one time, there are alternative settlement options that can be chosen.
Several of the most common of these could include: Interest Income Option Using the interest income optionthe life insurance company holds the funds and will pay a specified amount of interest on the funds.
Settlement option on an interest rate interest can be disbursed on a monthly, quarterly, semi-annual, or annual schedule. When selecting this option, the beneficiary will have the capability to get a portion or all of the proceeds when needed. Life Income Option The life income option is comparable to an annuity.
- The policyowner may also select among several settlement options to receive the insurance payout or allow the beneficiary to select the settlement option, such as a lump sum or as periodic payments.
- What are Life Insurance Settlement Options? | moyerfordmercury.com
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Joint and Survivor Life Annuity Option If using the joint and survivor life income annuity option, the beneficiary will be permitted to annuitize the death benefit payments structured upon two or more individual lives. This would mean that the benefit payments will be dependent on the amount of benefit proceeds, as well as the life expectancy of the named beneficiary who is anticipated to live longer.
The payout of the benefit proceeds will consequently continue to pass from one beneficiary to the other up until the last beneficiary has died. Specific Income Option Should the beneficiary choose the specific income option, they will get an equal measure of income each year for a specific number of years up until all of the benefit proceeds have been paid out.
There are many life insurance settlement options that can be confusing at first; your policy may pay out a lump-sum cash payment, life income, a fixed amount, or interest paid periodically. As a policyholder, you can usually choose the settlement method you prefer although your beneficiary may also get to choose. Many life insurance companies offer a guaranteed interest rate on all settlement options with the exception of a lump sum. Lump Sum Option The lump sum option is by far the most common of all life insurance settlement options and the most simple to understand. With a lump sum payment, the beneficiary receives the full death benefit all at once and income tax-free.
Using this settlement option, if the beneficiary should die before all of the benefit income has been collected; another trading and loneliness could be chosen to accept the balance of the benefit payments until all benefit payments have been paid.
Fixed Period and Fixed Amount Options The fixed period option will pay out both an amount of principal plus interest to the beneficiary during a stated time frame.
Your beneficiary might receive the death benefit in a single lump-sum, for example, or as a lifetime stream of payments.
If the primary beneficiary should die before the whole amount of the proceeds have been paid, the balance of the funds will be paid to the contingent beneficiary that was identified in the insurance policy. Using the fixed amount settlement option, the death benefit proceeds will be given out in a fixed amount over time until both the principal and the interest have been totally paid out to the beneficiary.
Definition of 'Settlement Option'
While using this specific option, the recipient beneficiary has the option to either increase or decrease the payment amount — and if they settlement option on an interest rate, they could even change to a completely different settlement option entirely. Choosing Life Insurance Settlement Options When it comes to dispersing the death benefit proceeds from a life insurance policy, there are several options to pick from.
Consequently, it is usually a good idea to discuss which strategy would work better with an expert in the life insurance field. This way, you can be confident that you comprehend how every option functions and which one would work most effectively for your specific situation.
In any event, irrespective of whether the life insurance proceeds are obtained as one lump sum or in an installment option, the primary amount of the proceeds is generally free to the beneficiary of federal income taxation. Advance Settlement Planning Obtaining the settlement from the life insurance policy is only about half of the battle. There are two distinct kinds of insurance plans that you want to choose from, a whole life insurance policy or a term life insurance policy.
- Understanding your Settlement Options
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Without sufficient life insurance coverage, you could very well leave them with added debts that they will not have the money to pay options strategies that bring profit. Speak with an Independent Life Insurance Agent Certainly, for most individuals and families, life insurance may be confusing enough without having to consider the many settlement options available to the beneficiary.
Fortunately, this is a decision that can be made after the named insured passes, but it makes sense for your spouse or another family member who has been designated your beneficiary to understand their options in advance.
Interest Income Option
For more information on life insurance settlement options, contact the insurance professionals at LifeInsure. Com at during normal business hours, or contact us through our website for a free and confidential quote.
Being independent, I represent many highly-rated insurance companies and, because I am not beholden to any one insurance company, my focus is to find the right company and policy for each individual client. I believe that when people shop for insurance or anything else, for that matter on the Internet, they are looking for a simple, non-intrusive, non-pressure method of doing so.
In many cases, this income may need to last a lifetime. While many beneficiaries take the full amount of the death benefit as a lump sum, insurance companies offer an array of Settlement Options that can help meet a family?
I strive to treat my prospective clients with the utmost respect and I believe an educated prospect can make the right decision without sales pressure. Please feel free to contact me at your convenience.