What are the different settlement options when collecting a life insurance claim?
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Asked March 10, 2015
When a life insurance policy matures and is due for settlement, the beneficiaries may be offered several options for collecting on the policy. The most common method is a lump sum payment, but other options may be more practical, depending on the needs of the beneficiary.
With a lump sum payment, the recipient gets the full face value plus any accrued cash value. Once paid, the policy has been settled and the beneficiaries will not have any additional claims against the insurer. This option can be modified slightly, where the beneficiary leaves the amount with the insurance company until a later date. This allows the policy to continue to draw interest until the claimant withdraws the funds.
Another option is to set up a payment schedule based on either a specific duration or regular payment amounts. This method allows the beneficiary to receive multiple payments while still earning interest on the remaining value owed. This method may use a trust fund or other financial tool to manage the funds for the beneficiary.
Most insurers also offer a range of payment options, such as payments made at regular intervals for the lifetime of the beneficiary. A variation on this option is to make regular payments until a specific date or until the beneficiary reaches a certain age, at which the remainder of the policy value is paid out in a single lump sum.
If you are interested in setting up a life insurance policy to match particular goals, talk with your insurance company about the options they have available. Not every company will allow you to use all of the options available while some companies may have additional options not specified here, such as investing options, insurance replication for the beneficiary, and more.
Answered March 12, 2015 by Anonymous