By Marnina Delahanty
At Asurea, we find it’s a common misconception that life insurance payouts are always given in one lump sum. There are actually many options. Fitting the right payout with the right beneficiary depends on their specific needs and situation. There are six general categories of life insurance payouts. Let’s take a closer look at each…
1. Lump-Sum Payout
The best known form of payout is definitely the Lump-Sum Payout. The insurance company pays in a single transaction, be it a check or bank deposit. Lump-sum payout is definitely the simplest form of settling a life insurance policy.
2. Installment Payments
These are also known as, “Systematic Withdrawal.” In this format, the insurance company issues multiple payments over time. For example, on a $100,000 policy, payouts could be made annually over the course of 10 years. So, each year the beneficiary would receive $10,000. Meanwhile, interest accrues on the balance the insurance company holds on the beneficiary’s behalf.
3. Straight Life Income
In this option, the insurance company guarantees that it will pay the beneficiary a certain amount at certain intervals for their entire life, regardless of how long they live. Periodic payments can be scheduled in a variety of ways; bi-monthly, monthly, annually, etc.
This payout structure has its disadvantages, though. If the beneficiary dies soon after starting to collect, all payments cease. Whatever the unpaid death benefit balance, it then belongs to the insurance company. The next type of policy payout addresses this problem.
4. Life Income with Period Certain
In this format, payouts are guaranteed for a certain period of time. For example, in a 20 Year Period Certain policy, payments would be made to the primary beneficiary for 20 Years. If he or she dies before that period finishes, payouts are then made to a contingent beneficiary. After the guaranteed period ends, payments continue for the primary beneficiary’s lifetime, and end if he or she already passed.
5. Joint Life Insurance Payouts
In this type of policy, two individuals are insured. It can be structured in two ways; First-to-Die, and Second-to-Die, also known as Survivorship. In First-to-Die policies, death benefits are paid out upon the passing of the first insured to die. In Survivorship, or Second-to-Die policies, heirs receive payouts after BOTH insured die.
6. Interest-Only Payouts
In this payout structure the principal of the death benefit is held by the insurance company, which then distributes the interest on that principal to the beneficiary. A time can be specified to distribute the principal incrementally, or in full.
We, at Asurea, hope this gives you a solid understanding of your many life insurance payout options. Give us a call now, and we’ll secure a policy protecting you and yours.
916-888-1807, or 800-689-5490 x121.