LIFE INSURANCE PAYOUT CHOICES
In the event that you pass away, your listed beneficiaries will be paid the insured amount of your policy provided that it was vested at the time. To receive their money, they must first file a claim using a certified copy of your death certificate and personal identification that they are the person(s) listed as the beneficiary(ies). It is important that every person who is covered by a life insurance policy provide a copy of the policy with the agent’s name and contact information to all their beneficiaries so they can contact the agent to begin the claim process in the event of you passing away. There are several ways your beneficiaries might expect to receive the proceeds of your life insurance policy once they make their claim. These include: +Lump Sum Payment +Annuity Payments Within Annuity Payments, there are several options, including:
- 1. Monthly Income Payments for Life
- 2. Period Certain Payments
- 3. Interest-Only Payments
- 4. Joint and Last Survivor Income Payments
- 5. Specified Amount Payments
We will review each of these forms of payment and options on the pages below.
A. Lump Sum Payment
Just as it says, taking a lump sum payment means that the beneficiaries will receive the face value of the life insurance policy in one lump sum payment. The advantage is that they will receive a large sum of money all at once. They can meet your funeral expenses, any medical costs, pay off the mortgage, invest the total amount, or do whatever else they want with the money once they receive a lump sum payment. The disadvantage is that some people can spend a large amount of money impulsively and don’t stop until most or all of it is gone. If you are concerned that one or more of your beneficiaries will not behave sensibly with the money, then a life insurance policy that pays out in a lump sum might not be the best choice for them. A better option to make sure they are set up well in life could be a payout in the form of annuity payments.
B. Annuity Payments
An annuity life insurance payout means that your beneficiaries will receive the funds from your policy over a period of time. They can receive monthly or even annual payments over a specified number of years until the total payout has been received. The benefits of this are that your beneficiaries will continue to receive income from the life insurance policy over the length of time that you choose, at a rate specified by the insurance company, depending on the value of the policy. Annuity payments are stable, steady income which can support them through the first few years after your death, through college, and so on. They can be a good option to help support a young family until the children are grown.
The disadvantage is that they will not receive a large sum all at once, but if they are working, then the extra money could help them pay off the mortgage more quickly, even if not all at once. As a side note, annuities are available to you while you are alive as well, to guarantee income for life. You would need to set up an account with a substantial lump sum, such as $300,000, to get started, and there would be a vesting period, but it is worth considering if you want to have more flexibility in your work and retirement situation as you get older. Ask a financial planner for more information about annuities when you are discussing your various life insurance options