Settlement options

A policy´s death benefit is typically paid in cash as a single lump sum. However, there are other payout options. A policy´s settlement may be specified by the policyholder or chosen by the beneficiary if no terms are designated. Common settlement options include:

Interest option. The amount of the death benefit remains with the insurance company, and the interest on the amount is paid to the beneficiary on a regular basis. Withdrawal of the principal is often allowed under certain conditions.

Fixed period. The death benefit is paid out at regular intervals, with interest, over a period of time specified in the policy.

Life refund. The insurance company pays a set monthly amount to the beneficiary for the remainder his or her lifetime. Under this option it´s possible for the beneficiary to receive more than the policy´s stated death benefit if he or she lives for a long time. However, if the beneficiary dies after a short time, he or she might have received substantially less. The amount of the monthly payment is determined by the face value of the policy and the beneficiary´s age and health status.

Joint and survivor. Periodic payments are made for the duration of two lifetimes, rather than one. Joint and survivor settlement is a common option when a policy beneficiary is married. If the spouse who is the primary beneficiary dies first, the surviving spouse will still receive regular payments. The amount of a joint and survivor payment is determined by the age and health factors of both spouses.

Related: Reverse Mortgages vs. Viatical Settlements

Viatical settlements vs. Senior settlements.