Settlement Options, A Forgotten Tool

Insurance agents and life insurance policy owners need to remember one of the simplest and cost efficient estate planning techniques available to them are life insurance settlement options.  These are the provisions that allow the policy owner to establish a method of payment to the beneficiary that is different than the lump sum or cash payment.  This approach is ideal for the individual who fears that the beneficiary may not be adept at managing a large sum of money, or is simply worried that the insurance proceeds may be squandered by a spendthrift.  In either case, life insurance settlement options provide the peace of mind to the policy owner who wants to protect the beneficiary from them self.

The first settlement option is the “interest only” option.  In this scenario the death benefit is left with the insurance company, which then pays out only the interest earned to the beneficiary. A minimum interest rate is provided, but generally speaking the insurance companies usually pay a higher rate than the guaranteed minimum.  The attraction of this method is that it takes away the worry of investing the money because the principle is protected by the insurance company and a steady flow of interest will be paid.

The second settlement option is the “fixed amount option”.  Here a specified dollar amount is paid out until all of the principle and interest is depleted.  One example of this option would be to pay $6,000 per quarter to the beneficiary until the money is exhausted.  With this method, it is not uncommon for the policy owners to vary the income amounts payable at different times to the beneficiary, as well as to grant the opportunity to the beneficiary to make a withdrawal of some portion of the principle at different periods of time.

Life options are slightly more complicated because they can be designed to pay out for the life of one beneficiary (single life income option), or for more than one life (joint and survivor life income option).  With the single life income option, the insurance company will make installments from the proceeds for the entire life of the beneficiary or for a predetermined period of time if the beneficiary were to die suddenly.  The joint and survivor life income option will continue payments if first beneficiary dies, but the second beneficiary is still alive.  The payment may be for the same amount, or for a smaller portion of the original installment.   sn:20001jwli

Since the utilization of settlement options would mean that the insurance company wouldl be holding at least some portion of the death proceeds for a very long time, it is critical that the policy owner spend an adequate amount of time determining the financial health of the insurance company being considered.  An easy way to accomplish the due diligence even before they get Orlando life insurance quote, is to look up the Orlando life insurance company ratings from the prominent rating services such as A.M. Best, Standard & Poor’s, Moody’s and Fitch ratings.  All of these companies view the insurers with a slightly different approach, which gives the buyer a reasonable level of security in their purchase decision.

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