Insurance settlement options refer to the manner in which life insurance policy proceeds are paid the beneficiary (or beneficiaries) following a claim. There are a number of different options available, the most common of which is a lump sum payout. This occurs when the beneficiary receives the entire amount of the death benefit – also known as the policy’s face amount – in one single lump sum.
Oftentimes, the beneficiary will need a large amount of funds quickly for the purpose of paying final expenses such as the funeral and burial of the decedent, as well as other intended purposes of the funds such as a mortgage payoff, future college education costs, or replacement of the decedent’s income. When these proceeds are received, they are typically free of federal income taxation to the beneficiary.
We know that life insurance can be a tricky subject. If someone that you love has recently passed away, and you’re the beneficiary, you’re going to be facing a lot of difficult decisions. Death brings plenty of emotional and financial struggles.
Taxation and Inheritance Proceeds
Just as in life, Uncle Sam will want to take his share following one’s death. While the circumstances and the amounts can vary a great deal, in most cases, people can be hit with inheritance and estate tax, as well as final income tax, upon passing.
Inheritance tax occurs after an individual has received a payout from a decedent. It is a tax on the amount that has been received, and it is required to be paid by the recipient. This type of tax is levied by one’s individual state. Therefore, in many instances, an estate can actually be taxed twice – once by the federal estate tax, and then again by the state inheritance tax.
The good news regarding life insurance proceeds is that even though they are oftentimes included in a decedent’s estate (although they can be removed by initiating some careful estate planning strategies), these funds are generally not inclusive for federal income tax purposes of the recipient. So, depending on the amount of the proceeds, this alone can save a substantial amount of inherited funds.
Other Life Insurance Settlement Options
In addition to receiving life insurance proceeds as a lump sum, there are typically other options that are available to the beneficiary. These may include:
- Interest Income Option – With this option, the insurance company will retain the funds and pay out just a small amount of interest to the beneficiary on a regular basis.
- Fixed Period Option – The fixed period option pays the beneficiary both principal and interest over a fixed period of time. If the primary beneficiary passes away prior to receiving the entire amount of the proceeds, the remaining amount of funds will be sent to the policy’s contingent beneficiary.
- Fixed Amount Option – The fixed amount settlement option will pay the proceeds to the beneficiary in a fixed amount over time until both the principal and the interest earned are fully paid out. This option can also be set up to that the payments can increase or decrease for a specific time frame, for instance, if the beneficiary needs funds to pay off a debt. This option is also referred to as the installment amount option.
- Life Income Option – The life income option is similar to an annuity. With this option, the beneficiary is guaranteed an income for life. Therefore, the amount of income that is received by the beneficiary will depend upon the amount of the death benefit, as well as the beneficiary’s age and gender. The beneficiary may choose between a life income for a certain period of time such as 10 or 15 years, or a life income throughout the remainder of his or her life – regardless of how long that may be.
- Specific Income Option – With the specific income option, the policy beneficiary can receive an equal amount of income each year for a set number of years until the total amount of death benefit proceeds has been paid out. The beneficiary may choose another individual to receive the remainder of the funds should he or she pass away before all of the proceeds have been received.
- Joint and Survivor Option – With the joint and survivor option, the beneficiary is allowed to annuitize the payment based on the lives of two income recipients. Therefore, the payments are based on the amount of the death benefit proceeds plus the life expectancy of the beneficiary who is expected to live the longest. Income payments will continue until the last recipient passes away.
Getting Affordable Life Insurance Protection
If you’ve recently lost someone you love, you might be thinking about your own passing. A lot of people buy a life insurance policy after someone close to them passes on. You might be in this boat. If you are, we want to offer you some tips on ways you can save money.
While the importance of life insurance is obvious, there are still millions of Americans that don’t have life insurance coverage. Your policy should always be there if you need it, you shouldn’t have to worry about paying the premiums.
We know it’s not easy, but we highly suggest you quit smoking. It’s a tall order, but if you’re a smoker, you’re going to pay twice as much. There is no way around it. Unless you want to pay massive rates, it’s time to wean yourself off those smokes.
Quitting smoking is not the only way you can improve your health and save money. Just like they told you in health class, healthy food choices and regular physical activity can get you in shape, improve your mood, and save you money (maybe they didn’t tell you that part). The better your health is, the lower rates they’ll give you.
Every insurance company is different, and all of them are going to give you drastically different rates depending on which company that you contact. Finding the perfect company for your needs is the difference in getting an affordable plan or getting one that is going to break your bank every month.
You probably don’t want to spend the time to call dozens of agents. Who has time to do that? You don’t have to. One simple call to our experienced agents can save you all the trouble.
If you want access to over 30 insurance quotes with just one call, then you’ve come to the right place. We can deliver those quotes to you without the hassle of the pushy insurance agents.
Call us today for a quote at 1-888-552-6159.