On fewer and fewer life insurance policies and almost all older ones, the insurer offers a variety of survivor options when the insured passes away.
The following is a list of the more common settlement options:
Lump Sum Payment
This is a one-time payment for the total or partial value of the insurance policy.
Income for a Fixed Period from five to 25 years
If you should die before the payments are complete, your beneficiary will get the remainder in the same time intervals.
Life Income with a Guaranteed Payment
You collect a payment for the rest of your life at least equal to a guaranteed amount, which is calculated by the insurance company. If you should die before the guaranteed amount is paid, your beneficiary will receive the difference at your death.
Joint and Survivor Life Income
Payments are made for your life and the life of your selected survivor. Your survivor does not have to get the same amount – it may be selected at 33 percent, 66 percent, and 100 percent.
This provides income for only your life. When you die, payments cease altogether.
Installment Refund with Life Income
You will receive income for life. Should you die before you have received total payments equal to your initial contribution, your beneficiary will receive the difference.
Income of a Specific Amount
You can select an amount to be paid until the principal is exhausted.
The decision of which option to take can be complicated. Keep in mind that the rate of return on the various options (expect the lump-sum) is fairly low – so you may not be maximizing the rate of return.
Another consideration is that, except for the lump-sum option, access to the funds will be lost.
Currently, most carriers, upon presentation of a death certificate, deposit the proceeds into a money market account and send the beneficiary a checkbook. The checkbook can then be used to write checks up to the total amount of the death benefit, plus any interest.
If you seek additional information about survivor options, email me at firstname.lastname@example.org.
Tony Steuer is an author and advocate for financial preparedness. Tony Steuer, CLU, LA, CPFFE, helps people make sense of the financial world in a way that’s easy for them to understand. His books including, “GET READY!,” “Insurance Made Easy,” and “Questions and Answers on Life Insurance,” have won numerous awards. Tony is the founder of the GET READY! Initiative which includes the GET READY! financial organization system, the GET READY! Financial Preparedness Club, GET READY! Podcast, and the GET READY! Financial Principles, a best practices playbook for the financial services industry. Tony served as long-term member of the California Department of Insurance Curriculum Board. Tony is regularly featured in the media including the New York Times, the Washington Post, Fast Company, and other media. He has also appeared as a guest on television shows, such as ABC’s “Seven on Your Side.” Visit https://tonysteuer.com/ to join the GET READY! Financial Preparedness Club and access free resources.