Settlement Options
Settlement Options
The insurance proceeds are usually paid with in one month from the death of the insured. There are some settlement options that the insured or the beneficiary can take advantage of. These options can be selected by the insured at the time the policy is issued, at anytime after the policy has been issued., or by the beneficiary when the proceeds is paid. Among the options are the following:
- Lump Sum - The insured or the beneficiary can chose to get a lump sum payment. If it is a death benefit payment, there is no tax involved. However, if the owner decided to take out for example $30,000 cash build-up out of the policy, then he or she would have to pay taxes on the net gain.
- Interest Income - Under this option, the insurance company holds the benefit proceeds and pay interest on the money to the appointed individual ( either the insured or the beneficiary ). The payout would be monthly or quarterly depends on the agreement drawn upon. The interest rate at which payment are made under this option are at the rate guaranteed in the policy when the owner purchased it.
- Fixed Amount - The insurance company pays the money to the insured or beneficiary in the equal installments until the total fund is exhausted. Interest at the guaranteed or better rate is paid on the unpaid balance. Keep in mind that any amount that exceed the principal is taxable.
- Fixed Period - This option is similar to the fixed amount except that pay-out occurs over a limited period. The beneficiary may chose to receive payments monthly for ten years or twenty years. The payment is larger because it pays over a limited time rather than a lifetime. This may appeal to a family with modest income who needs extra income to help support a family.
- Life Income - This option is also pay-out in an equal installments to the beneficiary. The only difference is that the amount of payment is depending on the age and sex of the person being paid.
The insured can pick the option for his or her beneficiary. However, many company will prohibit any further changes once the insured had decided on the settlement option. Some policies offer the beneficiary the right to change the settlement option. But if you imply a un-reversible clause then it cannot be changed by wither the insured or beneficiary.