There are many common life insurance payout options for financial protection. These options typically refer to the methods in which the policies are paid out. Choosing these options often allows the beneficiaries to pay off significant expenses, such as funerals. As a financial professional, you should learn some alternative life insurance payout options that replace the deceased’s income and help their loved ones pay continuing expenses. To help you ensure financial stability, read on to learn about the most common life insurance payout options for financial protection.
Lump Sum Payments
Lump sum payments are one of the most common life insurance payout options. They allow beneficiaries to receive the entire payment in one transaction. Typically, this income is tax-free, though estate taxes may be relevant in some rare cases. Most policyholders and their beneficiaries maximize payment flexibility with lump sum options. This way, they retain complete control over the money, and use it however they see fit. Surely, provide financial freedom and flexibility with lump sum payment options.
Another common life insurance payout option is various annuities retirement investments. These annuities pay fixed amounts over a predetermined length of time. Many policyholders annuitize their policies to offer reliable sources of income to their beneficiaries. In fact, annuities are one of the best payout options for policyholders without pressing debts to repay. There are several annuity options. For example, policyholders choose if they want payments over a set period, or the rest of their lives. Additionally, if the annuitant dies before a set time is up, their payout goes to a pre-designated beneficiary. Absolutely, use insurance payouts as a steady income stream with annuities.
Retained Asset Accounts
Retained asset accounts are a third common life insurance payout option. They are a special checking account maintained by the life insurance provider. Payouts are kept in the retained asset account, while beneficiaries get a checkbook. With this checkbook, they write checks as needed. Additionally, there are no limits or penalties on withdrawal amounts. Lastly, these accounts accrue interest as long as they are open. Certainly, maintain a robust rainy-day fund for beneficiaries with retained asset accounts.
Interest Only Payments
The next common life insurance payout option is interest-only payments. These options pay beneficiaries interest earned on the death benefit amount. The full death benefit sum remains with the insurance provider. Typically, the provider makes interest only payments for a set period, and pays out the full benefit at the end of this period. Since these options are entirely interest-based, they are listed as ordinary income. Therefore, these payments are taxable. Definitely, provide beneficiary payments while maintaining a large sum with interest only payout options.
Lastly, fixed period payout options are the final common life insurance payment. These options spread death benefit payments and their earned interest over a predetermined period. Typically, these payments come monthly and are tax-free income. Many policyholder ensure their beneficiaries can make monthly payments, such as rent or mortgages, with fixed period options. Additionally, policyholders can specify a second beneficiary. The second beneficiary receives payments should the first pass away. Of course, provide steady, regular income with fixed period life insurance payout options.
There is a myriad of common life insurance payout options for financial protection. Following these strategic processes is essential to manage your money properly. For example, provide financial freedom and flexibility with lump sum payment options. Second, use insurance payouts as a steady income stream with annuities. Third, maintain a robust rainy-day fund for beneficiaries with retained asset accounts. Next, provide beneficiary payments while maintaining a large sum with interest only payout options. Finally, provide steady, regular income with fixed period life insurance payout options. When searching for common life insurance payout options for financial protection, consider the options described above.