Settlement Options

At the death of the insured, unless another arrangement has been made, the insurance proceeds will be paid to the beneficiary in a lump sum. However, life insurance policies usually give the policyholder (or the beneficiary) the right to choose non-lump sum payouts, known as settlement options. There are five common types of settlement options:

Although insurance companies have touted settlement options as "a poor man's trust," the insurance agents we have talked to are almost unanimous in this advice: "take the cash." The unstated assumption here is that in computing amounts to be received under settlement options, the insurance companies use interest rate assumptions that aren't particularly favorable to beneficiaries.