Not Financial Advice: Life insurance payout is the money given to the beneficiary (ies) upon the death of a policy holder. It provides the beneficiary (ies) peace of mind that financial difficulties may be avoided in the event of a person’s death.
However, some life insurance companies have designed policies that allow their policyholder’s to draw against the face value of the policy in the event of a terminal, chronic or critical illness. This means that the policyholder can also be the beneficiary of their own life insurance policy and receive the life insurance benefits.
Life insurance payout can be received on several different options like:
Lump Sum
- This option pays the entire death benefit to beneficiary at one time. The entire payment will be income tax free. The beneficiary may then use as much of the death benefit as he or she needs, and invest any remaining amount.
Life Income
- The beneficiary has the option to receive the death benefit in guaranteed payments over the remainder of his or her life. The life insurance company will look at the person's age and gender and calculate how much income the beneficiary could receive each year from the death benefit. The payments will only stop when the beneficiary dies. If he or she dies earlier than expected, the insurance company keeps the unpaid amount.
Specific Income
- With this option, the beneficiary can tell the insurance company the schedule to follow to pay the death benefit. If the beneficiary dies before the specified period ends, a secondary beneficiary may receive the remainder of the payments.
Buying life insurance for the first time can be overwhelming. You’ll run into a lot of terms that you may not understand at first. The good news is those terms are not very difficult to figure out once you do a little research.
Check out Forbes' tips that can help you create an organized approach toward investigating life insurance so that you can find the policy you need without the hassle.