When collecting a life insurance policy, one must decide what you would like for the proceeds of the policy to accomplish. The proceeds of the policy are many times referred to as the death benefit. Is the death benefit, simply designed to bury the deceased and pay off a few final debts, or is the policy designed to produce income over the life of a surviving spouse, child or children, referred to as the beneficiaries? There are several ways that this death benefit can be paid.
The first option that most people are familiar with is the lump-sum option. Under the lump- sum option, the entire proceed of the policy is paid to the beneficiary or beneficiaries, that have been listed. Upon the insured death, and upon the person filing the appropriate paperwork, a cheque will be cut for the full face amount of your policy. The beneficiary will then decide how to use those proceeds.
The second option would be a fixed amount. Under this option, the beneficiary of the policy would determine how much monthly income that they would need and then would request a payout in that amount. The face amount of the policy plus any interest would be paid out in equal monthly payments, until the whole amount had been disbursed.
The third option would be life income. Life income can be chosen by the beneficiary in one or two ways; life income without a certain period, and life income with a certain period. If the beneficiary chooses life income with no certain period, then the policy would pay an income for the life of the beneficiary; but payment would cease upon the beneficiary’s death. This option would generate the largest amount of income. If the beneficiary chooses life income with certain periods, then the beneficiary would choose how long they want the policy to pay income for, and it would generate a benefit for that period of time; regardless, of whether or not the initial beneficiary is alive. This period of time could be stated as 10, 15, or 20 years certain. The initial beneficiary would have the option of naming an additional beneficiary to receive the policy proceeds in case of their death.
The last option to be addressed here is the interest income option. Under this option the principal of the policy would stay intact, and the beneficiary would choose to receive the interest being generated by the policy. With this option the beneficiary would have the option of naming another beneficiary to receive the principal amount upon their death or would have the option of receiving some, or the entire principal amount at a later date.
There are some other payout options available. These may also achieve the financial goals that the policy was initially designed to achieve, or addressed financial needs that have been created by the insured death.