II.E · The Individual Life Insurance Contract
Settlement options: how the death benefit is paid
How the beneficiary (or owner) can receive the death benefit:
1. Lump sum (cash): paid all at once. The usual default when no option was chosen. 2. Interest only: the insurer keeps the principal and pays interest monthly or yearly; the principal is paid out later. The interest is taxable. 3. Fixed period: payments last for a chosen number of years. The period determines the size of each payment. 4. Fixed amount: a chosen payment continues until principal and interest run out. The amount determines how long payments last. 5. Life income: payments for as long as the payee lives. Variations include life with period certain, life with refund, and joint and survivor, which keeps paying the surviving spouse.
Spendthrift clause: not a payout option but a protective provision used with installment options. The beneficiary cannot assign, borrow against or commute future payments, and the proceeds are protected from the beneficiary's creditors before they are paid out.
Remember
· Fixed period: time fixed, amount varies. Fixed amount: amount fixed, time varies.
· Interest only: principal kept; interest paid and taxable.
· The spendthrift clause protects installment proceeds from the beneficiary's creditors.
Exam prep classes
Life and real estate license exam prep with experienced instructors.
Learn more ›