Insurance companies can pay you, the policyholder, in a number of ways. They can also pay the beneficiary in a number of different ways. It varies from insurance company to company and by the type of policy a person holds.
Also, remember that a life insurance settlement is different from a viatical settlement. Viatical settlements are for those who have been diagnosed terminally ill, realizing that the ill person will likely live not much longer.
Life insurance settlements on the other hand are voluntary and only done with those in normal circumstances (not ill) but with a life expectancy of less than 20 years.