Life Insurance Settlement

Life Insurance Settlement Options are used to distribute the proceeds of a life insurance policy to a beneficiary. A life insurance settlement can be made in cash…that is in one lump sum…or it can be made in the form of an income. There are several ways the income can be paid. They are…

• Life income with no certain period.
• Life income with certain period.
• Joint and last survivor life income.
• Interest income.
• Fixed period income.
• Fixed amount option.

Let us look at what each life insurance settlement income option is all about and how they can apply to real life situations.

• Life Income With No Certain Period.As the heading suggests, if you choose this option, you would receive whatever income the proceeds of the policy would provide for as long as you live. This income ceases upon your death. The amount of income would be more than the income provided with certain period option mentioned below.Let us suppose you are the beneficiary of a life insurance policy and you have no living relatives or dependents. You also need the maximum income you can receive to live on. This may be a good life insurance settlement option to choose because you will the largest life income available.
• Life Income With Certain Periods.You may choose a life income just like the above example but with 10 years certain, 15 years certain 0r 20 years certain. What this means is that even if you should die after receiving the income for one year…or any period of time for that matter…a beneficiary you name would receive this income for an additional 9 years, 14years, or 19 years, depending on your income choice.Let us suppose a husband dies, who has a two year child. He set up his life insurance to provide an income to his wife for as long as she lives. He also has to consider his two year old child in case his wife should die in the child’s formative years. If the wife should die also the child would receive the same income for an additional 18 years, if he chose the Life income with a 20 year certain period. Of course, this case is more complex than that. A Guardian and a Trust would need to be set up.
• Joint And Last Survivor Income Option.If you chose to use this life insurance settlement option the income would paid to two beneficiaries and would cease only after the last beneficiary died.Let us suppose a husband and wife is named beneficiary of a life policy set up by the husbands parents. The income would be paid to them both and would continue even if one died. The income would cease on the death of the last to die.
• Interest Income Option.With this life insurance settlement option…upon the death of the insured…the principal would stay in tact with the insurance company and the interest would be paid to the beneficiary in whatever manner they should choose. For example an income could be paid monthly or annually.Let us suppose the proceeds of the policy is $1,000,000 and is payable to a frugal wife. Let us also suppose the income derived from this $1,000,000 is 7% per annum. That is $70,000. Her house is paid off. She is receiving a pension. Her children are grown.This may be a good life insurance settlement option to choose. She could take the principal any time she chooses or her beneficiaries would receive the principal…$1,000,000…upon her death.
• Fixed Period Income Option.The recipient of the income says to the insurance company, “pay me whatever these proceeds will provide over a period of say 10 years.”The beneficiary would receive equal payments on a monthly, quarterly, half yearly, or yearly basis for 10 years. The amount paid to the beneficiary of the income would be considerably more than had the money been taken in one lump sum.
• Fixed Amount Income Option.The beneficiary of the proceeds says to the insurance company, “pay me $1,000 per month until the proceeds are exhausted.”Here this person decides how much income he or she needs. The actual pay out will be considerably more than the principal as the balance held by the insurance company is always earning interest.

The same life insurance settlement options can be used to pay out retirement income derived from a cash value life insurance policy or an annuity.