What settlement options do I have for a typical life insurance policy?

When a life insurance policy matures and it is time to pay out the value of the policy, most insurance companies provide the beneficiaries with a number of options on how the settlement can be made. Unless the policy owner has specified his or her wishes prior to the policy coming up for settlement, it will be important for the beneficiaries to give careful consideration to how they receive the death benefits. You could take the whole settlement as a lump sum, split it up over a period of time, just collect on the interest, or accept installments until the proceeds are exhausted.

Fixed Payments - The beneficiary of the policy can accept fixed payments for a predetermined period. This method provides the beneficiaries with a fixed income over a period of time. The amount of the payments can either be written into the policy or determined by the beneficiary during the settlement process.

Lump Sum Payment - This method delivers the full amount of the policy value to the beneficiary as a single payment. If multiple beneficiaries are involved, the policy owner generally decides on what portion of the proceeds go to each one, or the proceeds are divided equally between them.

Life Income with Installments Certain - Installments are paid to the beneficiary is preset amounts for a specified period of time. Once that time has elapsed, payments will continue to be made throughout the recipient's lifetime, at a different rate than the initial certain installments.

Single Premium Annuity - In this method, the entire proceeds of the policy, or a specified portion of it, are paid into an annuity or trust fund. Payments are then made from the fund to the recipients, typically in payments that calculated to last for that person's lifetime.

Interest Payments - The insurance company retains the value of the policy under this method, and begins regular payments to the recipients based on the interest earned. For large life insurance policies, this method retains the value of the policy while providing guaranteed income for the beneficiary.

It is also possible for the policy owner to divide the value of the policy up, delivering the settlement for each portion differently. In this case, each beneficiary would receive the amount they have been allocated under the settlement terms defined in the policy. One person, for instance, might receive a lump sum, while a second beneficiary is provided with a single premium annuity. When getting life insurance quotes, be sure to speak with your agent to see which options would be best for you and your own unique situation.