Life Insurance Settlement Options

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Life Insurance Settlement Options

Life insurance companies can offer you a variety of life insurance settlement options when the insured passes away. To put it in basic terms, your Life Insurance Settlement Options are the various choices that are available to distribute the death benefit to the beneficiary.

Settlement options in life insurance

Your life insurance policy has 2 main parts to it. 

  1. The first part is the “insured” or the person who purchased the policy.
  2. The second is the “beneficiary” or the person who will will receive the death benefit payout.

The Settlement is simply the way in which the death benefit will be paid to your life insurance beneficiary.

There are a variety of settlement options in life insurance. Some are more common than others. For example, a lump sum payment is the most common. However, there a are situations where other settlement options may be better. 

Let’s look more closely into all your settlement options for life insurance.

Top 8 Life Insurance Settlement Options

Lump Sum Payment Option

A lump sum payment is the most common life insurance settlement option. When you select a lump sum payment, you will receive the entire death benefit in a single check payment. For many beneficiaries, a lump sum is needed so they can pay off any debts, health bills, funeral costs, mortgage and any other expenses. Your beneficiary can get there lump sum payment as a tax free death benefit. 

Fixed Period Income Option

Your life insurance beneficiary can choose to get the death benefit paid for a specific period of time. They can choose the number of years they want to receive income. For example, they can choose a period of 5 to 25 years. This income will have not only the death benefit, but also the interest payments (which is taxable income). 

What if the beneficiary happens to die before the entire death benefit is paid out? The remaining death benefit will be paid to the beneficiary’s beneficiary.

Lifetime Income with Guaranteed Payment

You will get a payment for the rest of their lives that is at least equal to a guaranteed amount that is calculated by the insurance carrier. If you happen to die before this guaranteed death benefit is paid, then your named beneficiary shall get whatever the difference is at your death.

Joint and Survivor Life Income Option

This option is like the option above but the insurance payments will be based on more than one individual. So instead of the life insurance carrier deciding how much that you shall be paid based on your life expectancy- they will us an expected lifespan of whoever they feel will live the longest.

Lifetime Income Option

This option functions like an annuity as it provides you a portion of the death benefit for the rest of your beneficiary’s life. The amount that will be paid will depend on the face value of your life insurance policy as well as the gender and age of your beneficiary is when the policy starts to pay.

Installment Refund with Life Income

With this option, you’ll get an income for your entire life. If you happen to die prior to receiving total payments that are equal to what you have contributed- your life insurance beneficiary will get the difference.

Income with a Fixed Amount Option

With this option, you can choose a specific amount to be paid until your principal is finished. With a fixed amount settlement you can get fixed payments, but you may raise or lower the size of your payment. This may be good choice for those who need a flexible settlement option.

Interest Income Option

With this settlement option, the life insurance company will retain the money and will pay a minimum interest rate that is predetermined. This is a good option if payments aren’t needed until sometime in the future. The interest that is paid will be distributed monthly, quarterly, semiannually or annually. 

What is the best life insurance settlement option?

When it comes to buying life insurance, everyone and every situation is unique. The best way for you to know all of your settlement options is to speak with a financial adviser and an independent life insurance agents like you’d find here at Life Insurance Blog.

At Life Insurance Blog, our goal is to make sure that your family’s financial future is protected by getting you the most affordable life insurance policy available. Tomorrow is never guaranteed, so don’t wait to begin the life insurance process.

Thank you for reading our post, Life Insurance Settlement Options. If you’d like to learn more about life insurance please read our other articles from our Life Insurance 101 page.

Michael Quinn
Michael is a licensed life insurance agent, expert & owner of Life Insurance Blog. LIB has helped thousands of shoppers understand life insurance and secure affordable coverage.

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Michael Quinn
Founder – Life Insurance Blog

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